Hitachi Integrated Report 2021
Year ended March 31, 2021

Contents
Vision2 CEO Message
10 Hitachi’s History as a Corporate Citizenship
12 Creating New Value for Society through Digital Technologies (Lumada)
14 Business of the Hitachi Group
16 Hitachi’s Global Business Portfolio

Value Creation
18 Strategic Focus Area		──Ensuring the Viability of Business and a Sustainable Society
20 The Value Creation Process
22 Looking Back on Past Mid-term Management Plans
24 Strategy and Resource Allocation
26 COO Message
28 Strategy 1: Expand Revenues by			Accelerating the Social Innovation Business
36 Strategy 2: Enhance Global Competitiveness46 Strategy 3: Reinforce Management System to Improve Profitability
50 CFO Message
52 Value Creation Story
52

IT Sector

55

Energy Sector

58

Industry Sector

61

Mobility Sector

64

Smart Life Sector

67

Automotive Systems Business

Sustainability
70 Addressing Risks and Opportunities
74

Response to Climate-related Risks and Opportunities

77

Promoting Information Security

78

Occupational Health and Safety

79

Value Chain Responsibilities

80

Quality Assurance

81

Compliance

Governance82 Corporate Governance
85
Message from Independent Directors
		(Nominating, Compensation and Audit Committee Chairs)

94 LeadershipData
98 10-year Financial Data
100 5-year Non-financial Data
101 Segment Highlights
102 Corporate Data / Stock Information /		 Representations and Warranties

Editorial Policy for Hitachi Integrated Report 2021
Editorial Policy
The goal of Hitachi’s integrated report is to explain to various stakeholders Hitachi’s aspirations and the value that it provides to society, as well as the businessmodels, strategies, and management systems and to promote a better understanding of Hitachi’s medium- and long-term growth potential.
In this 2021 report, we have placed a particular emphasis on communicating, in an easy-to-understand way, Hitachi’s activities targeting co-creation and thecreation of value through digital transformations (DX) in social infrastructure, which is Hitachi’s core area of business. Furthermore, it summarizes the themes thatshould be prioritized for the realization of a sustainable society amid increasingly complex and diverse social issues, such as COVID-19, climate change, aging
populations, and natural disasters, as new “Strategic Focus Area,” and systematically explains strategies and measures.
In editing this report, we referred to the International Integrated Reporting Council’s (IIRC’s) International Integrated Reporting Framework and the Ministry of
Economy, Trade, and Industry of Japan’s Guidance for Collaborative Value Creation.

Production Structure

Board of Directors

Evaluation/
Feedback

Chairman & CEO/President & COO
Information Disclosure Working Group
Supervisor: Hidenobu Nakahata (Senior Vice President and Executive Officer,
Head of Corporate Communications and Audit)

Information Disclosure Report Planning Production Team
Integrated Report, Annual Securities Report, Sustainability Report
Investor Relations Division, Legal Division, Sustainability Promotion Division,
Corporate Brand & Communications Division

Planning/
Content Production

Related Divisions
Executive Officers in Charge
Content Production/
SupportGroup Corporate

Business Divisions

Research & Development Group•IT •Energy •Industry•Mobility •Smart Life •Hitachi Astemo

Board of Directors OfficeInformation Disclosure
Structure

Value Creation Story

Sustainability/ESG Information

Investor Information•Sustainability Report•Annual Securities Report*•Corporate Governance Report*•Financial Statements*•Sustainability Website•Business Report*

https://www.hitachi.com/sustainability/

Financial

Non-financial

Integrated Report•Corporate Strategy(Mid-term Management Plan)•Investor Relations Website
https://www.hitachi.com/IR-e/Comprehensiveness*Statutory disclosure/Timely disclosure

Reporting Scope

Contact

Period:Hitachi, Ltd.
6-6, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8280
TEL: +81-3-3258-1111 E-mail: ir.info.hq@hitachi.com

April 1, 2020, to March 31, 2021
(Certain subsequent activities and information presented after April 2021 are also included.)Companies:
Hitachi, Ltd., and its consolidated subsidiaries
Scope of Data:•Social data:
The scope of the data are individually described.
•Environmental data: 872 companies (Hitachi, Ltd., and 871 consolidated subsidiaries)
However, Group companies that were acquired in the middle of the
fiscal year are not included in the scope of the environmental load data.
For the scope of the environmental load data associated with Hitachi’sbusiness operations, Hitachi, Ltd., and consolidated subsidiaries
whose environmental load comprises more than 90%* of the total,
excluding the Group companies mentioned above.
*Based on calculations by Hitachi, Ltd.
Accounting Standard: Unless otherwise noted, this report is prepared in accordance with U.S.
GAAP through fiscal 2013 and with the International Financial
Reporting Standards (IFRS) from fiscal 2014.

Investor Relations

https://www.hitachi.com/IR-e/ (English)
https://www.hitachi.co.jp/IR/ (Japanese)

Sustainability

https://www.hitachi.com/sustainability/ (English)
https://www.hitachi.co.jp/sustainability/ (Japanese)

Disclaimer Regarding Forward-looking Statements
Certain statements regarding the future of the Company set forth in this Report may constitute “forwardlooking statements,” such as “plan,” “forecast,” “target,” and “strategy.” Although forward-looking statements
contained in this report are based upon what the Company has determined to be reasonable assumptions at
the time of disclosure, actual performance and other results may differ materially from those anticipated insuch statements. For the major factors regarding these differences, please see “Addressing Risks andOpportunities” on page 70 of this Report.

CEO Message

Hitachi: Leading the Worldin DX and Decarbonization
Toshiaki Higashihara
Executive Chairman & CEO

Maintaining a solid profit base amid major changes

Stakeholder capitalism
The notion that a company
creates long-term value forall stakeholders, including
customers, employees,
suppliers, local communities,
and shareholders.

Social Innovation BusinessBusiness that resolves a variety
of issues faced by society andcustomers in a broad rangeof fields, especially social
infrastructure, through the useof information technology (IT)and co-creation with diverse
partners.

2

Hitachi Integrated Report 2021

In 2020, as the world confronted the dramatic impact of COVID-19, a number of pressing socialand economic issues were brought to light. From the perspective of sustainability, activities
targeting climate change and human rights have quickly emerged as the most urgent issues
worldwide, including in Japan.
After the disruption of the past year, even capitalism itself is seeing a transformation from thelong-practiced “shareholder capitalism” to “stakeholder capitalism,” which prioritizes long-termvalue creation for a wide range of stakeholders. In addition to economic value, in the context ofcorporate activities, a greater emphasis is now being placed on environmental value and social
value. Last year’s Integrated Report demonstrated how the environmental changes brought onby the pandemic provided an opportunity to achieve things that we could not have achieved in
the past. In keeping with emerging global demands, the Social Innovation Business has worked
to offer remote, contactless, and automated solutions. By responding to these changes in thebusiness environment, Hitachi posted an adjusted operating income ratio in fiscal 2020 of 6.5%
in its five sectors—IT, Energy, Industry, Mobility, and Smart Life—all despite the negative effects
of COVID-19. Although this figure represents a decline of two percentage points compared withthe previous year, it exceeded the initial forecast of 5.3%. Though our response has allowed
for an ideal V-shaped recovery following the decline into negative profits in fiscal 2008, Hitachi
has continued to change. By embracing social innovation, Hitachi has been able to target
structural reforms that allow it to better generate social innovations and create a solid profit

Visionbase that endured even during the COVID-19 pandemic. Furthermore, by strengthening cash
management, we have increased operating cash flow by approximately ¥230 billion year overyear and established a strong business base poised for sustainable growth in the future.
These results are entirely due to the efforts of our employees. By making the health and safetyof our employees, their families, customers, and business partners our top priority last fiscal
year, we established a strong remote work environment that allowed us to focus our efforts on
supporting customers and maintaining social infrastructures. I would like to express my deep
appreciation to the employees who adapted themselves to the new normal and bravely continued
to perform their duties in keeping with the changing needs of customers and society as a whole.

Fiscal 2020 saw progress in expanding the Lumada business andstrengthening the business portfolio
Value Creation

Lumada businessBusiness that realizes social
innovations through solutions
and services that apply Hitachi’s
advanced digital technologies.

P.12
Sustainability

Lumada Alliance Program
A program that builds
ecosystems through an open
innovation community based onmatching with diverse partners
to resolve social issues thatcannot easily be overcome bya single company alone andaccelerate social innovations
that create value.

GovernanceLumada Innovation Hub
Tokyo
The flagship location for theLumada Innovation Hub,which serves as a hub for cocreation activities, connecting
customers and partners tocreate innovations and creating
new value by combining theirrespective knowledge and ideas.

Data

In fiscal 2020, Hitachi’s Lumada business continued to grow despite the COVID-19 pandemic.
Lumada has expanded steadily since it was first offered in 2016, and in November of lastyear, we started the Lumada Alliance Program, which was followed by the opening of theLumada Innovation Hub Tokyo in April of this year. Additionally, we completed the acquisition of
GlobalLogic, a leading U.S.-based digital engineering services company, which will enable us tofurther strengthen our global rollout and increase sales from 1.1 trillion yen in fiscal 2020 to 1.6
trillion yen in fiscal 2021, with the goal of accelerating this to 3 trillion yen by fiscal 2025.
Until now, we have strengthened the business portfolio with a focus on becoming a company
with business that can compete as a leader in the global market. Securing competitiveness isan essential condition in achieving digital solutions that will bring about social innovations thatgenerate new value.
In fiscal 2020, we made substantial progress in strengthening our five sectors and reorganizing
our business portfolio with a focus on readjusting capital relationships with listed subsidiaries.
In addition to the sell-off of Hitachi Chemical in April 2020, in May of that year, we converted
Hitachi High-Tech Corporation into a full subsidiary. Hitachi High-Tech boasts top of the line
measurement and analysis technologies and undertakes business involving in-vitro diagnostics
as well as semiconductor manufacturing equipment. In July 2020, we acquired ABB’s power
grids business, which has the top level market share and advanced technologies. Thisacquisition, which brought with it more than 15,000 customers in about 90 countries worldwide
and welcomed approximately 36,000 outstanding employees into the Hitachi Group, contributed
to the strengthening of our management base, which is essential to accelerating the rollout ofHitachi’s Social Innovation Business on a global scale. Specifically, to effectively utilize the global
operations of Hitachi ABB Power Grids throughout the entire organization, we are currently
promoting the construction of common ERP systems and global shared services. From this, we
expect to achieve cumulative cost reductions of 70 billion yen and 100 billion yen in these two
fields, respectively, by fiscal 2025. In January 2021, we launched Hitachi Astemo through the
integration of Hitachi Automotive Systems with three Honda affiliates: Keihin Corporation, Showa
Corporation, and Nissin Kogyo Co., Ltd. These integrations will streamline the development ofcore parts and solutions in the shift toward electric power, which represents the key to developing
the next-generation of automobiles, while securing a leading position and creating mobility
solutions for the future. In April 2021, a decision was made to sell off Hitachi Metals by the endof this fiscal year. Moving forward, Hitachi Metals will strengthen its competitiveness and recoverprofitability under an ownership group led by the Bain Capital Consortium.
In fiscal 2020, we decided to pull out of business operations on the Horizon project, theconstruction of a new nuclear power plant in the United Kingdom. In the nuclear power business,
Hitachi will focus on the decommissioning and reactivation of power plants in Japan, a task ofgreat social significance to society. Hitachi has been involved in the nuclear power business for
50 years, and we look forward to fulfilling our responsibilities through this business in the future
as well, in line with the Japanese government’s energy policies.
The strength of our global business portfolio, which was built through a comprehensive processof business selection and concentration, was demonstrated throughout COVID-19. Even as we
maintain the competitiveness of each individual business, we will further refine those strengths todemonstrate comprehensive capabilities in the context of digital solutions.

3

In fiscal 2021, we will complete the transition to a “growth mode”

GlobalLogic

P.29

JR Automation
An American robotic systems
integration company acquiredby Hitachi in December 2019.
Involved in the construction of
production lines and logistic
systems using industrial robots
for customers in the automotive,
aerospace, e-commerce, andmedical device industries, mainly
in North America.

Hitachi ABB Power Grids
Began operations in July
2020, following the acquisitionof the power grids businessfrom ABB, a major heavy
electrical equipment company
headquartered in Switzerland.
Provides the world’s mostadvanced power transmission
and distribution systems,
products, and services, including
micro-grids that achieve highly
reliable electric power supply,and high-voltage direct current(HVDC) power transmission
systems that enable large-scaleenergy transmission over long
distances. In October 2021, thecompany’s name was changed
to Hitachi Energy, to show astrengthened commitment tosustainable energy in the future.

4

Hitachi Integrated Report 2021

Fiscal 2021 is the final year of the 2021 Mid-term Management Plan, in which we declared that
Hitachi would become a global leader in the Social Innovation Business.
Our first area of focus will be to accelerate the global rollout of the Lumada business with theacquisition of GlobalLogic. GlobalLogic develops software for customers in fields such as
healthcare, telecommunications, manufacturing, and the automotive sector, leveraging thestrength of some 21,000 digital specialists and eight co-creation bases worldwide. Based on
dialogues with customers, GlobalLogic provides solutions that resolve issues from a customer
perspective, and we feel that this business demonstrates a high affinity with Hitachi’s Lumada
platform. Boasting strong trust relationships with customers and a customer retention rate ofmore than 90%, one of GlobalLogic’s most attractive features in terms of technical capabilities is
the scope of “Chip-to-Cloud” development, which enables collaborations ranging from frontline
data and micro-programs in devices to cloud environments. By making GlobalLogic part of the
Hitachi Group, we will strengthen co-creation with customers on a global scale. At the sametime, we will combine GlobalLogic’s engineering capabilities with Hitachi’s system development
capabilities to strengthen the development and provision of globally scalable applications andservices, thereby accelerating DX in social infrastructure throughout the world.
We have established the major framework for future growth by acquiring powerful assets in arange of business domains, including JR Automation in 2019, Hitachi High-Tech and Hitachi ABBPower Grids in 2020, and Hitachi Astemo in 2021. Moving forward, we will leverage these assets
to demonstrate synergy with digital technologies in each region and create an even more robust
Hitachi.
In the past, Hitachi Astemo operated in the Smart Life sector, but starting from fiscal 2021, Hitachi
Astemo will operate as an independent segment (the Automotive Systems Segment), as we aim
to accelerate business growth in six segments. Although the effects of COVID-19 still linger, we
will secure an adjusted operating income ratio of 8% in fiscal 2021, and in fiscal 2022, the firstyear of the new Mid-term Management Plan, we will bring this figure above 10%. We will position
fiscal 2021 as the year in which we complete the transition to a growth mode, as we work tofurther strengthen profitability.

Becoming a platform provider that brings about DX for societyEver since its establishment in 1910, Hitachi has taken a “product out” approach, bringing about
innovations and responding to customer needs through product development and the leveragingof outstanding technical capabilities. Since the beginning of the 2000s, however, we have shifted
our mindset from a product-oriented to a customer-oriented approach, as we strive to transform
into a company that provides social innovations. The most significant change in direction toward
customer-oriented co-creation took place in 2016, when we launched the Lumada businessamid the rapid proliferation of digital technologies.
In this context, “customer-oriented” refers to an approach built on collaborating to discoverand resolve the issues faced by customers. For example, if a customer in the manufacturingindustry that owns several plants needs to reduce lead-time and increase quality, we share thosemanagement issues and work together to devise the ideal solution.
In recent years, the social issues that dominate our headlines have become increasingly complex
and diverse, as can be seen throughout the world in the context of climate change, aging
populations, natural disasters, and the resulting fragmentation of supply chains. We are seeing a
growing demand to resolve these social issues not through an extension of existing solutions, but
by using “value” as a starting point, with a view toward future society and the value that should
be provided to make that society a reality. There are limits, however, to the issues that Hitachi canresolve on its own. To bring about social innovations that will create value in people’s lives, it isessential that we undertake co-creation with a range of diverse stakeholders, including customers
and partners. We believe that this presents an ideal opportunity to apply the strength of open
approaches, one of the unique features of Lumada. By leveraging this strength, we have madeLumada an open platform that welcomes many stakeholders, and we have kicked off the Lumada
Alliance Program to build an ecosystem that enables us to provide approaches and solutions toVisionValue Creation

Lumada Solution Hub
A platform that gathers
and catalogs new solutions
developed through co-creationand enables those solutions
to be built and introduced
quickly and easily in cloudenvironments.

Sustainabilitysocial problems together with those stakeholders. Through the open innovation community that
Hitachi provides, we will combine the diverse knowledge and expertise of our partners and create
new solutions to social issues that would have been difficult to resolve alone. The solutions createdthrough this process are registered in the Lumada Solution Hub where they can be further used bya variety of customers and partners to achieve a chain of value creation and continuous innovation.
The Lumada Alliance Program already includes dozens of customer and partner companies. It
is important to continue creating innovation through products and promoting business from acustomer perspective, but we expect to see an increasing number of social issues that cannot
be resolved without close collaboration and activities involving multiple companies. We are awarethat as the public face of the Lumada business, Hitachi will be required to demonstrate strong
leadership while exemplifying the social values we hope to advance.
Furthermore, to resolve the issues unique to countries and regions throughout the world, wemust provide a venue for co-creation, designed to promote discussion and increase awarenessof customers’ issues while developing solutions. With this in mind, Hitachi has established 11
co-creation bases around the world, including the United States, the United Kingdom, Thailand,
and China. This year, we added eight co-creation bases run by GlobalLogic, mainly in Europe
and the Americas. The Lumada Innovation Hub Tokyo opened this spring to gather DX specialists
and to promote practical co-creation using real-world data. All co-creation bases are connectedvirtually to form a venue for embodying ideas to promote the development and provision ofsolutions more efficiently. We will continue to promote co-creation from a medium- to long-term
perspective using the Kyōsō-no-Mori innovation base, as well as through collaboration and cocreation with research agencies in Japan and around the world.
I have personally been conducting outreach activities to raise broader awareness of Hitachi as acompany that promotes DX in social infrastructures on a global scale, and I am extremely pleased
to see that recently we have received an increasing number of positive reactions from outside
the company.
For example, Hitachi is recognized as a Leader based on its’ completeness of vision and ability to
execution in the “2020 Gartner Magic Quadrant for Industrial IoT Platforms report” which evaluatesproviders of industrial IoT platforms*. In addition, in June of this year, Hitachi was recognized for
promoting the DX business using Lumada, as well as for its in-house digital applications, receiving
the Grand Prix in the DX Stocks 2021 awards from the Ministry of Economy, Trade and Industry
and the Tokyo Stock Exchange.

* Gartner, Magic Quadrant for
Industrial IoT Platforms, Eric
Goodness, et al.,19 October
2020

Governance

Gartner Disclaimer
Gartner does not endorse any vendor,
product or service depicted in its
research publications, and does notadvise technology users to select only
those vendors with the highest ratingsor other designation. Gartner research
publications consist of the opinionsof Gartner’s research organizationand should not be construed asstatements of fact. Gartner disclaims
all warranties, expressed or implied,with respect to this research, including
any warranties of merchantability or
fitness for a particular purpose.

Data

5

Focusing on three fields: the Environment, Resilience,and Security & Safety
OT × IT × Products
Hitachi offers operational
technology (OT) cultivated mainlyin the social infrastructure field,
along with advanced information
technology (IT) and products.
Hitachi’s strength is in its ability
to realize DX for customers andsociety by combining these threeelements.

6

Hitachi Integrated Report 2021

Hitachi has always strived to improve people’s quality of life and increase value for partnercompanies by making maximum use of its strengths in “OT x IT x Products” and offering
consumer-centric digital solutions that use the Lumada platform, based on ideas from thecustomer’s perspective. When thinking about the future from a value perspective, we need tocreate an ideal vision of people’s lives at a certain point in the future—for example, in 2050—
and then back track from that vision to determine what we should do now and what we should
prepare. Thinking from that perspective, there are three fields in which Hitachi can create newvalue for society through the Social Innovation Business, and in which Hitachi can grow: theEnvironment, Resilience, and Security & Safety.
I would like to talk for a moment about Hitachi’s vision for this future society and people’s lives
in the context of these three fields. In the environmental field, we will contribute to achieving adecarbonized, resource-efficient society. Hitachi will contribute to building a new society, mainly
through the power grids business, which supports the transition to renewable energy; theautomotive systems business, which promotes the transition to electric vehicles and other formsof electric power to achieve a decarbonized society; and the railway systems business, which
accelerates green mobility.
For example, the society of the future will use electric power supplied by wind power generation.
However, the locations where wind power generators can be installed are limited, so achieving
this goal will require technologies that can supply energy efficiently across long distances.
We will respond to these needs by developing solutions that incorporate direct current powertransmission, transformer stations, and transformer devices. Replacing gasoline with electricity is
one solution for achieving a society in which people are able to use carbon-free, next-generation
automobiles. Rather than creating these solutions as an extension of existing technologies
and businesses, we need to back track from this future vision and study issues such as power
generation and energy storage before deciding how best to move forward.
Our goal in the second key field of resilience is to achieve a society that can withstand thefragmentation of public services and social systems arising as a result of natural disasters andinsufficient resources. We need to build a resilient society that can recover quickly and protect
people’s lifestyles even in the face of disaster. Countries around the world are confronting aging
infrastructure while also investing in digitization against the backdrop of rapid urbanization andpopulation increases. Governments and companies must face the possibility of a decreasing
labor force due to an aging population, as well as a resulting decline in economic activity. In
the industrial world, amid continuing globalization and digitalization, and with the backdrop of
insufficient resources, there is a growing demand for management systems that provide support
to global supply chains and these systems could become a source of competitive superiority forother companies. In response to these issues, we will support sustainable public services andcorporate activities by providing platforms for digital services that target public institutions andthe financial industry; robotics SI and other innovative digital solutions as well as logistics services
that link various parts of the supply chain, such as manufacturing, warehouses, and distribution;
along with cybersecurity that protects all of these component elements.

A treatment system thatprojects a particle beam (e.g.,
proton beam or carbon beam)
to destroy or kill cancer cells.
Treatment can be provided
on an outpatient basis, withlittle impact on the patient’s
body, enabling treatments thatmaintain the patient’s qualityof life.

Creation of Social andEnvironmental Value

P.34
Sustainability

Executive Officers’
Compensation

P.89

GovernanceAmong the three fields mentioned above, there is no doubt that environmental issues are
the most urgent. Earlier, I mentioned how Hitachi’s businesses contribute to a decarbonized,
resource-efficient society, but Hitachi’s in-house corporate activities are also working toward thisgoal.
Hitachi declared its intention to achieve carbon neutrality at in-house business offices andproduction bases by fiscal 2030, and in December 2020, we were certified under the Science
Based Targets initiative (SBTi) for these activities. In January 2020, Hitachi’s Omika Works
became the first factory operated by a Japanese company to be listed in the World Economic
Forum Lighthouse under the “most advanced factory” category. The efficiency-boosting activities
undertaken at Omika Works will be expanded throughout the entire value chain. Hitachi aims toachieve carbon neutrality across its entire value chain together with our customers by fiscal 2050.
In April of this year, we appointed Executive Vice President Alistair Dormer as Chief Environmental
Officer to accelerate these activities. We also incorporated environmental value into thecompensation structure for executives as a KPI starting from April 2021 to promote a greaterawareness of reducing CO2 emissions in the context of day-to-day operations. We will accelerate
the formulation and execution of environmental strategies as a leading company in the creationof environmental value, on par with the activities of leading environmentally-oriented companies.

Particle therapy system forcancer treatment

Value Creation

The environment: An urgent issue
Aiming for carbon neutrality

VisionFinally, in the security & safety field, as we enter an era in which it is said that people will live for
100 years, we will strive for a society in which everyone can live active lives, enjoying health in both
body and mind. To help achieve this, Hitachi will develop and provide the mobility and building
services and connected appliances required to build cities and support safe and healthy lifestyles
from childhood to old age. In addition, Hitachi will spearhead the development of healthcare
solutions that support healthy lifestyles for everyone throughout their entire lives. In creating thenext generation of healthcare solutions, we must go beyond simply testing and treatment, weneed to support healthy living through the entire life cycle, from prevention of illnesses through tothe senior years, when long-term care is needed. We must also provide individualized healthcare
and build healthcare systems that meet the diverse needs of different individuals and regions. In
addition to contributing to testing and treatment through in-vitro diagnostics (IVD) technologies,
particle therapy systems and pharmaceutical manufacturing solutions, we will improve people’squality of life by providing new healthcare services using data obtained from those systems anddevices.

Fostering human resources with the ability
to empathize with society

Data

The value of human resources is an important element of Hitachi’s sustainable growth. As I
mentioned last year, in our efforts to promote the Social Innovation Business, it is essential thateach Hitachi employee see social issues as relevant to their own lives. Each individual must takeon the challenges faced by customers, markets, and regions throughout the world, and offer
solutions. To do this, we will need to make a transition to job-based HR management, in which
the right people are assigned to the appropriate positions according to their own goals andabilities.
In the work culture that we are aiming to create, employees announce the social issues thatthey want to take on. The company can contribute to these efforts by recognizing employees fortheir determination to take on these issues. In last year’s Integrated Report, I gave an example
of an assignment where I personally felt a strong motivation and sense of satisfaction, when I
was in charge of introducing the Autonomous decentralized Transport Operation control System(ATOS)—a transport management system for the Tokyo area—in collaboration with East Japan
Railway Company about 25 years ago. A real sense that you are contributing to society andwords of appreciation from the customers are the driving force that creates a sense of autonomy

7

in each individual employee. I want to transform this positive force into motivational energy forthe growth of Hitachi as a whole. We are putting in place an environment to support autonomy,
including the “Make a difference!” in-house idea contest that began in 2015, and the Future
Investment Division, an organization established directly under the president four years ago. In
addition, Hitachi has conducted studies of new business creation and fields to be strengthenedin the medium and long term based on trends in next-generation technologies and changes in
the world at large.

“空己唯盡孚誠”— Feel empathy with heart empty and contribute topeople with sincerity: The empathetic mind
Hitachi is driven by people with empathetic minds. This has been true throughout Hitachi’s
history. Hitachi was founded as a venture company by Namihei Odaira in 1910. Ever since
its establishment, based on the corporate philosophy of “Contributing to society through thedevelopment of superior, original technology and products,” Hitachi has put forward the founding
concepts of harmony, sincerity, and a pioneering spirit, and has placed great value on a venturespirit. At the entrance to the Hitachi Central Research Laboratory, you will find the words of
Kumeo Baba, one of Hitachi’s founders, who said: “Empty your mind, and devote yourself tosincerity.” One of the Chinese characters he uses is “孚,” which is said to represent a motherbird protecting her eggs. Similarly, when we interact with customers, it is important that we adopt
the stance of expressing empathy, putting aside our ego, and devoting ourselves to sincerity,transcending self-interest. I have personally taken the words “Feel empathy with heart empty andcontribute to people with sincerity” as a personal motto, and I strongly believe this is the mindset
that should be adopted by every employee involved in the Social Innovation Business as well as
the next generation of leaders who will drive that business. Empathy brings greater happinessthan self-interest. We will focus our efforts on fostering employees who see social issues as theirown, involve those around them with passion, and strive to achieve goals together.

The role of the CEO and the essential attributesof next-generation leaders

Hitachi’s “Principles
guiding the ethical use of
AI in Social Innovation
Business”

https://www.hitachi.
co.jp/products/it/lumada/
about/ai/ldsl/document/
ai_document_en.pdf

8

Hitachi Integrated Report 2021

I believe that the role of the CEO is to present a vision, lay out a path toward realizing that vision,and communicate this to others. I often say to future leaders, “Leaders must always see thingsfrom the perspectives of time, regions, and value, and pick up on trends.” If you think about thevalues in each region, which change over time, then what needs to be done now will become
clear, in the context of social, environmental, and economic value. Based on this view, the quality
demanded of a leader is the ability to present a vision of how Hitachi’s assets should be used toachieve a richer society, lay out a road map for realizing that vision, and communicate that roadmap to society.
When thinking about the company’s vision, the important thing is how we define a rich society
and people’s happiness. I believe that society must enable each individual to freely pursue andrealize his or her own form of happiness. We can make society more comfortable and convenientthrough the evolution of digital technologies and progress in robotics and AI, but humans
ultimately control these technologies, so the central assumption is that people are able to use AI,
robotics, and other technologies. This year, Hitachi established principles guiding the ethical use
of AI, and in the context of ethics training for engineers as well, we will continue to communicate
the importance of human-centric innovations.

VisionValue Creation

To become a global leader in the Social Innovation Business

Sustainability

Diversity & Inclusion
Governance

P.42

Data

I’ve placed an emphasis on dialogue and engagement with shareholders and investors, andrecently, I have had increasing opportunities to discuss a wide range of topics, including
environmental issues and human resource development. Environmental, social, and governance(ESG) criteria are top priorities in corporate management and it is understood as responsibilities
to society. To further merge business and sustainability, Hitachi established the Executive
Sustainability Committee, comprised of members of the Senior Executive Committee (where I
serve as Chairman) along with CEOs from the various business units and General Managers fromthe various Head Office divisions, to discuss and decide on important policies and initiatives.
Regarding human resources, we will increase engagement with employees and the effective useof human resources on a global scale, and at the same time promote diversity and inclusion, withthe goal of increasing the ratio of both female and non-Japanese executives and corporate officers
to 30% by fiscal 2030. Hitachi will also strengthen its response to issues related to human rightsthat have come to light recently by conducting partner audits and building a human rights risk
management structure. With regard to corporate governance, even looking at the compositionof the Board of Directors, it is clear that we have built a structure that emphasizes independence
and diversity with independent directors accounting for 10 out of 13 board members, six of whom
are non-Japanese. We have also recently introduced environmental indexes into the evaluationof executive compensation, and we are strengthening risk management as well, for example, interms of compliance, crisis, and business risks.
After making clear to all shareholders our policies regarding the allocation of management
resources, we will ensure a stable increase in dividends, while at the same time considering thepossibility of conducting share buybacks at the appropriate time, as part of efforts to share thefruits of growth with stakeholders.
Hitachi’s ideal image as a global leader in the Social Innovation Business is directly in line with
its public perception as a next-generation leader. We will continue our efforts to gain the trustof those around us by emphasizing openness and transparency while involving others with an
empathetic attitude. At Hitachi, we believe that a true leader is not someone who stands at thehead of the line and leads the way. Instead, a true leader looks toward the future with great
perspective, gained from encountering new ideas while working tirelessly to implement policies
that result in the best possible future for everyone. I will take every necessary step to bring Hitachicloser to this ideal image of a global leader. I look forward to your continued support as we
continue this work together.

9

Hitachi’s History as a Corporate Citizenship

Since its establishment, Hitachi has operated under the Mission “Contribute to society through the development of superior,original technology and products.” In accordance with this Mission, we have resolved issues facing society through thedevelopment of technologies and products that support social infrastructures. The Social Innovation Business creates newvalue for society by offering a combination of the OT (operational technology), IT (information technology), and products
cultivated over Hitachi’s 110-year history. Through this business, we strive to improve people’s quality of life and contribute toachieving a sustainable society. Originally set by Hitachi founder Namihei Odaira, the Mission has been carefully passed on to
generations of employees and stakeholders throughout the Company’s history. The Values reflect the Hitachi Founding Spirit,
which was shaped by the achievements of our company predecessors as they worked hard to fulfill Hitachi’s Mission. The Vision
has been created based on the Mission and Values. It is an expression of what the Hitachi Group aims to become in the future
as it advances to its next stage of growth. The Mission, Values, and Vision are made to be shared in a simple concept: HitachiGroup Identity.

1910

1940

1950

1960

Postwarreconstruction

Increase in transportation demandassociated with a rise in populationand fast economic growth

1970

1980
Globalization

IT Information
technology

Hitachi’s founder

Sogyo Koya (Hitachi’s first factory)

Development and supply oflarge-scale computers

Namihei Odaira

OT and Products

Five-horsepower
induction motor

10

Hitachi Integrated Report 2021

Infrastructure development and maintenance

Urban infrastructuredevelopment

Production of trains for
the Tokaido Shinkansen

Launch of operations
at the Shimane
Nuclear Power Station

Hitachi Group Identity

VisionValue Creation

2000

Spread of the Internet

Entered an era of highcapacity and high-speed
communication

2010

2020

Toward Realizing a DecarbonizedSociety and Circular Economy

Sustainability

1990

Social Innovation Business
Developing more advanced social
infrastructures by combining expertisein OT, IT, and products

Governance

Development of
virtual storage technology

IoT
Data

11

Creating New Value for Society through Digital Technologies

The future is unpredictable, and a variety of social issues are coming to light.
Amid these trends, there is growing demand throughout the world for digitaltransformation (DX) toward a better society that makes effective use of digitaltechnologies. Hitachi sees the rapidly increasing volumes of data madeaccessible through the Internet of Things (IoT) as a source of value. Using data topick up on signs of change, we will create new value with customers for the nextstage of society, as part of our efforts to achieve social innovations that increase
corporate value for customers and the quality of life (QoL) for people everywhere.
This is the essence of Lumada.
Customers and business partners

The concept of Lumada
Since launching Lumada in 2016, Hitachi has
accelerated the use of digital technologies
in social innovation. The name “Lumada”
is a coined word that combines the words“illuminate” and “data.” It expresses Hitachi’s
desire to create value through digitaltechnologies, respond to the needs ofcustomers and society, and help in addressing
issues and growing businesses.

OT assets
Field data

IT assets
Co-creation with Customers
and Partners

Business data

Domain Expertise(Solutions and customer cases)

Digital Innovation Platform

Components of Lumada

1

Digital innovation platform

Lumada’s digital innovation platform gathers advanced digital technologies such as AI and analytics.
To create a better society through digital transformation, it is important to adopt cyber physical systems that leverage IoT;
in other words, create a cycle of feedback in which AI and othertechnologies established in the cloud (in cyberspace) are used toAI
Sensors
Wirelessvisualize and analyze data gathered from the real world, and from
communication(5G)
that solutions are returned to the real world in real time.
Multi-cloudCollecting data
MaintenanceThrough this cycle, the real world is transformed into a place whereenvironment
servicesfrom the real world
new value is constantly being created to keep up with change. The
RealCyberspace
digital innovation platform creates and accelerates this chain of
New value
world
value creation. The thing that makes this platform unique is that
Providing feedback
Data collection
it adopts an open architecture that connects not only Hitachi’sandto the real world
Products
modeling platform
original technologies but also other companies’ products andData visualization
platforms to provide a combination of multiple digital technologies,
Control
andtechnologies
analysisproducts, and platforms.

2

Knowledge of industries and business

Hitachi has knowledge and expertise in a wide range of industries and businesses, including electric power, railways, manufacturing,and finance, as well as digital solutions where value has been verified through co-creation with customers. Universal solutions andcustomer cases applied as models have been accumulated through Lumada to enable the rapid rollout and use of these solutions
and expertise. The number and scope of fields is growing with each passing year, and the number of customer cases has alreadyexceeded 1,000. Hitachi is utilizing the expertise amassed through Lumada to quickly propose and provide solutions to the issues
faced by customers and society.
In one example, Lumada is used by an American truck leasing company in its maintenance operations. The company uses data tomonitor the status of its trucks, and then, through AI, the system analyzes and forecasts which parts might break down, and when,suggesting replacements before those failures occur. This enables efficient maintenance and prevents lost opportunities that mightarise due to mechanical failures. We will continue to create a library of solutions and customer cases in a variety of industries andbusinesses, resolving issues by applying Lumada’s AI and analytics technologies.

12

Hitachi Integrated Report 2021

3

Co-creation with customers and partners

Hitachi has prepared numerous co-creation methods for creating new value with customers and partners.

Data scientists

LumadaInnovation Hub

Domain experts

Combining andconnecting
knowledge and ideas

Co-creation
facilities

NEXPERIENCE
Co-creation
process

Solution
catalog
Support forsystem operation

Relationshipbuilding

Valuecreation

Implementation
on a social level

LumadaSolution Hub

LumadaAlliance Program

Connecting
solutions andtechnologies

Connecting
business partners

Cloud environments andedge computing/IoT

New value
New businesses
Resolution ofsocial issues

Innovation partners

Value Creation

NEXPERIENCE is a methodology for creating new businesses
and services through collaboration with partners. It enables us tocreate social innovation and navigate solutions for customers inthree main steps: 1) discovering issues, 2) proposing solutions,and 3) verifying value. We will promote co-creation by proposing
appropriate methods and content to customers through
NEXPERIENCE and applying those methods and content
in keeping with the unique characteristics of the themes inquestion and the status of studies, from the discovery of anissue—seeking out new business themes based on societal
trends—to creating and verifying ideas that transform data intovalue and formulating strategies for new business development.

Design thinkers

VisionNEXPERIENCE

Solution providers
Technology providers

Lumada Innovation Hub: Combining and connecting knowledge and ideas

Sustainability

Lumada Innovation Hub serves as a hub for co-creation activities, connecting customers and partners to innovate and generate newvalue by combining their respective knowledge and ideas.
The Lumada Innovation Hub Tokyo, which opened in April 2021 as a flagship site that links stakeholders virtually and physically andtranscends the boundaries of industries, such as customers, partners, and start-up companies, with diverse talent and co-creation
facilities on the front lines of the digital transformation, such as Hitachi’s “Kyōsō-no-Mori” (literally translated as “forest of collaborative
innovation”) and Omika Works, which was selected in the World Economic Forum Lighthouse as a most advanced factory. By bringing
various people together and combining diverse digital knowledge and technologies, we will create new value for society.

Lumada Alliance Program: Connecting partners

Governance

The Lumada Alliance Program offers an open innovation community that resolves social issues which cannot be overcome by a single
company alone and accelerates social innovations that create value. This program builds ecosystems which partners can contributeto their respective fields of specialization.
Hitachi has put forward a vision of “mutually utilizing technologies, know-how, and ideas, and creating new value from data, tocontribute to improving people’s quality of life and to the sustainable development of society and economies; then, reinvesting thisvalue in a positive cycle that promotes growth for all the parties involved.” The Lumada Alliance Program welcomes partners that
support this vision, to work together in taking on the challenges of various societal matters and regional issues that could not be
resolved by a single company alone. To resolve these issues, Hitachi matches diverse partners that demonstrate various strengths—
for example, digital solutions, global delivery, and technical support capabilities—to bring about a wave of “N-to-N” co-creation andaccelerate the creation of social innovation.

Lumada Solution Hub: Connecting solutions and technologies

Data

The Lumada Solution Hub is a platform that gathers and catalogs new solutions developed through co-creation and enables
customers to build and deploy those solutions quickly and easily on the cloud.
Solutions that have been proven effective by Hitachi and its partners are listed on the Lumada Solution Hub portal site. Customers
can search for solutions according to their relevant conditions, such as industry, themes, and approaches, and then refer to detailed
information of each solution, including lead time, costs, and other related information.
In this way, they can quickly and accurately find the solutions and digital technologies that they need. The Lumada Solution Hub also
provides a framework for building the chosen solutions in the customer’s own cloud environment. By selecting and building optimum
solutions quickly and easily, these customers can dramatically reduce the time and cost required in comparison to conventional
processes. After system construction is complete, Hitachi offers a variety of shared services to support system operation andmanagement—for example, service status monitoring and system operation proxy services—to facilitate the transition from proof
of concept (PoC) to full-scale operating environments and rapid rollout to multiple bases. Hitachi and its partners use the Lumada
Solution Hub to achieve n-fold scaling of solutions with a track record of generating value and to further expand that value.

Through Lumada, Hitachi has enhanced the three elements that are essential to digital transformations: digitaltechnology platforms for social innovation, the accumulation of diverse and generalized knowledge of industries andbusinesses, and co-creation methods that quickly connect these platforms and knowledge with solutions and provide
a framework for establishing and expanding the cycle of value creation. By effectively utilizing advanced digitaltechnologies and proven solutions, and by maximizing the value of co-creation, Hitachi will work with customers andpartners to achieve social innovations that create new value in the lives of people everywhere.

13

Business of the Hitachi GroupOur 2021 Mid-term Management Plan, launched in April 2019, focuses on simultaneously improving social, environmental,
and economic value, and establishes five business sectors (IT, Energy, Industry, Mobility, and Smart Life) for the creation ofsocial innovation. From April 2021, the Automotive Systems business (Hitachi Astemo) was made independent from the Smart
Life sector, as we undertake business with the goal of creating further value through the six segments. Through solutions thatleverage know-how in social infrastructure businesses and technologies, where Hitachi has been active for many years, andwhich combine Lumada with Hitachi’s knowledge in each segment, we will contribute to improving people’s quality of life andincreasing value for customer companies.

Revenues

Adjusted Operating Income

Composition ratio (%)

Composition ratio (%)

OthersHitachi Metals

Others

5%

(1)%

4%

Hitachi Construction Machinery
Hitachi Metals

6%

8%

IT

Hitachi Construction
Machinery

21%

8%
Automotive
Systems

10%

Revenues
by segment¥8,729.1 billion(FY2020)

Energy

16%

12%
9%

14%

7%
Smart Life

Industry

Smart Life

Automotive
Systems

Mobility

13%

Adjusted operating
income by segment

IT¥495.1 billion

53%(FY2020)

Mobility

15%
Industry

Energy(9)%9%

Revenues/Adjusted Operating Income Ratio/
Net Income

Revenues by Region
Composition ratio (%)

EuropeRevenues (billion yen)

11%

Net income attributable to Hitachi, Ltd. stockholders (billion yen)

¥1,013.4 billion(billion yen)

North America

13%

ASEAN, India
and others

10%¥850.3 billion

Adjusted operating income ratio (%)¥1,117.5 billion

9,162.2

600(FY2020)400

12%¥1,043.2 billion

9,368.6

8,767.2

7.6

52%

200

8.0

10

8,729.1
7.8

7.5

8

6

6.4

5.7
501.6

550.0

362.9

Japan

48%

9,500.0

9,480.6

800

Overseasrevenues ratio

China

(%)

10,000

231.2

222.5

4

2

¥4,154.8 billion
87.5
Other Areas

6%¥549.7 billion

00
FY2016 FY2017 FY2018 FY2019 FY2020 FY2021(Forecast)**Announced on July 30, 2021

14

Hitachi Integrated Report 2021

Main products and services

Main products and services

Energy solutions(Power grids, nuclear, renewableenergy, thermal)

Digital solutions (Consulting, software,
cloud services, system integration,
control systems)

VisionIT products (Storage, servers)
ATMs

Ene

IT

rgy

Value Creation

Industry

Revenues ofLumada Business

Mobility¥1,110.0 billion

Main products and services

Main products and services(FY2020)

Industry & distribution
solutionsSustainability

Building systems(Elevators, escalators)

Water & environment
solutions

Railway systems

Industrial machinery

Au

tom

oti

ve

Sys

rt
ma

S

tem

s

Main products and services

Main products and services

Hydraulic excavators

Smart life & eco-friendly systems(Home appliances, air-conditioning systems)
Measurement & analysis systems(Medical and bio, semiconductors, industry)

51.5 %

Ownership percentage of voting rights:

Hitachi
MetalsWheel loaders
Listed subsidiary

53.4%

Main products and services

Specialty steel products
Functional components and equipment

Mining machinery

Listed subsidiary

Magnetic materials

Maintenance and services

Note: Scheduled to be
sold bythe end of fiscal 2021

and power electronics materials

Construction solutions

Data

Hitachi Construction
Machinery

Governance

Main products and services

Powertrain, chassis,
advanced driver assistance,
motorcycle systems

Ownership percentage of voting rights:

Life

Wires, cables, and related products

Mine management systems

15

Hitachi’s Global Business Portfolio

Overseas revenues account for 52% of total revenues for Hitachi, which strives to be a global leader in the Social Innovation
Business. By combining Lumada with the global business portfolio that has been built up in each region and business, Hitachi
will further accelerate its global rollout and expand the value created and realized through the Social Innovation Business on a
global scale.

Railway
EnergyIT
Automotive
Systems
Industry

EnergyHitachiConstruction
MachineryIT

HitachiAutomotive Construction
Systems
Machinery

EuropeNorth
America

19 customer co-creation centers (as of July 2021)
Indicates businesses that account for a significant component ratio of revenues by region

Japan

North America

Number of employees

Number of subsidiaries

158,000 160

16

Number of employees

EuropeNumber of subsidiaries

27,000 87

Number of employees

32,000 150

Approx.

Approx.

Revenues (component ratio)

Revenues (component ratio)

Revenues (component ratio)

4,154.8 billion yen (48%)

1,117.5 billion yen (13%)

1,013.4 billion yen (11%)

Hitachi Integrated Report 2021

Approx.

Number of subsidiaries

Building
Systems

EnergyIT
Automotive
Systems

Industry

Building
Systems
Measurement
and Analysis
Systems
HitachiConstruction
Machinery

VisionSmart Life &Eco-friendly
Systems

Automotive
Systems

EnergyValue Creation

Automotive
Systems
IT

EnergyMeasurement
and Analysis
Systems
HitachiConstruction
Machinery

Sustainability

Japan
China

China

Approx.

52,000ASEAN, India and other areas

Other areas

Number of subsidiaries

Number of employees

Number of subsidiaries

Number of employees

144

Approx.

211

Approx.

61,000

Number of subsidiaries

20,000 120

Revenues (component ratio)

Revenues (component ratio)

Revenues (component ratio)

1,043.2 billion yen (12%)

850.3 billion yen (10%)

549.7 billion yen (6%)(FY2020)

17

Data

Number of employees

Governance

ASEAN, India
and other areas

Ensuring the Viability of Business and a Sustainable Society
Hitachi practices sustainable management, which incorporates sustainability into the core of its business strategies. In the2021 Mid-term Management Plan, for which fiscal 2021 is the final year, we have set the goal of becoming a global leader in
the Social Innovation Business to help achieve a sustainable society. To accomplish this goal, we will focus on three fields—theEnvironment, Resilience, and Security & Safety—as we contribute to resolving social and corporate management issues andstrive to improve value for customers and quality of life for people everywhere. Based on our domain knowledge and co-creation
with partners throughout the world, we will leverage Lumada to expand the Social Innovation Business.

Improve Quality of LifeAdd value for customers

Socialvalue

Environmental
value

Economic
value

Resolve social and management issues
by focusing on three key areas
Environment

Resilience

Security & Safety

Strategic Focus Area
HigherSocial innovations using digital technologies and AI
Code of conduct,
corporate ethics

Human rights
Diversity andinclusion (D&I)
Employee health and safety

Creating value
through co-creation
with customers
Responding toclimate change

Optimum healthcare for every global citizen

Circular economy/
Resource efficiency

Safe and secure lifestyles

Interest and importance for stakeholders

Hitachi undertakes activities with a focus on
creating value in important market domains, led
by our vision of the ideal companies and society
in 2030.
Hitachi’s current goal is to achieve sustainability
in society and Hitachi’s management, as partof efforts to increase value for customers andimprove the quality of life for people everywhere.
To achieve this goal, we have mapped key
initiatives based on impact for the company(Hitachi) and the level of interest and importancefor stakeholders. Among these, priority initiatives
have been designated as a strategic focus area.

Coexistence withlocal community
Biodiversity andpreservation ofnatural capital
Responsible
supply chains

Decent work

Responding toincreasingly
complex andchallenging risks

Enhancing and improving
resilience in aging social
infrastructures
Resilience in corporate
activities

Strategic Focus Area
Information security/Cybersecurity
Stakeholder engagement
Product safety
Corporate governance
Talent development

High

Tax
transparency

LargeWork-style reforms

Impact for the company (Hitachi)

LargerSustainability Strategy Promotion Structure
Hitachi, Ltd., has established an Executive Sustainability
Committee, whose members include Toshiaki Higashihara,
Executive Chairman & CEO, and other top management
members, along with CEOs from the various business
units (BUs). The purpose of this committee is to discussand decide on important policies and initiatives related tosustainability, share progress and results, and tie these into
further improvements and new activities.

18

Hitachi Integrated Report 2021

Sustainability Promotion Meetings have also been establishedunder this committee, attended by sustainability strategy
promotion officers in each BU (heads of business promotion
divisions). The purpose of these meetings is to create longterm corporate strategies with an emphasis on environmental,social, and governance (ESG) matters, and to promote concrete
initiatives related to sustainability, including contributions tomeeting the UN Sustainable Development Goals (SDGs).

Recognition of Issues and Strategies in Strategic Focus Areas
Strategic Focus
Area

Recognition of Issues and Strategies

Circular economy/
Resource efficiency

Optimum healthcare forevery global citizen

Enhancing andimproving resiliencein aging social
infrastructures
Resilience in corporate
activities

We have set the targets of achieving carbon neutrality within Hitachi byfiscal 2030 and achieving carbon neutrality through the value chain by fiscal
2050. As a leading company in the creation of environmental value, we willfurther accelerate our initiatives aimed at realizing these goals.
In a society characterized by rapid digitalization, urbanization and a growing
senior population, it is important that we enable people to enjoy comfortable,energetic lifestyles, within a safe and secure living environment. To do this,Hitachi provides city building solutions that support safe and secure living forpeople everywhere, as well as optimum healthcare for individuals.
In the healthcare field, we support a society in which more and more people
are living past the age of 100 through the development and provision ofsolutions that extend from prevention of illnesses in the pre-symptomatic
phase to testing, diagnostics, treatment and support for long-term care.
Society and the economy are always potentially susceptible to highly
unpredictable risks such as natural disasters, pandemics and cyberattacks.
Public services and corporate activities must be able to recover quickly evenin times of disaster. We also face the urgent need to create a society inwhich everyone can benefit equally from the public services delivered by
rapid digitalization.

Code of conduct,
corporate ethics

Responding toincreasingly complex
and challenging risks●●

Expand businesses that support public infrastructure and services
Expand businesses that support business operations such as
finances, industry, logistics, and cybersecurity• Value creation story in five sectors and the Automotive Systems
business
P.52-69●

Respect human rights
P.79• Training completion ratio • Auditing of supply chains●

Thorough work safety and hygiene
P.78• Reduce work-related accidents • Promote health

Hitachi is managing its workplaces and maximizing the potential of its
diverse talent pool in line with our basic philosophy that “Health and Safety
Always Come First.” We respect all people, including co-creation partners
and those who support the value chain, contributing to a society in which
everyone can work safely and with peace of mind.

●

Promote diversity and inclusion (D&I)
P.42• Ratio of non-Japanese and female executives and corporate officers• Number of non-Japanese and female employees• Number of female managers• Employment of people with disabilities

By encouraging the participation of diverse talent, we will promote active
co-creation between Hitachi and its partners and accelerate the creation of
new value through the Social Innovation Business.

●

Put in place and promote workplace environments that are
comfortable and satisfying for employees
P.42• Participation rate in global employee survey/engagement index• Create learning opportunities• Autonomous career support through HR management initiatives• Put in place a remote working environment• Promote social contributions●

Compliance
P.81
Build and operate risk management systems• Respond to risks and opportunities
P.70

Hitachi’s Social Innovation Business adds to the vitality of society andpeople’s lives.

Amid the rapid growth of Hitachi’s businesses and partners on a global
scale, the effective management of corporate compliance, geopolitical risks
and business risks is essential to the continuation of highly reliable businessactivities.
Hitachi recognizes that sharing codes of conduct, ensuring thoroughcompliance with laws and regulations, and promoting risk management
are particularly important to sustainable growth. We are also undertaking
initiatives to augment our corporate governance function.

●

Data

Decent work

Expand the Healthcare business
P.64
Expand businesses that support safe and secure transportationand lifestyles
P.61, P.64
• Value creation story in the Mobility and Smart Life sectors●

GovernanceDiversity and inclusion(D&I)

Promote “Hitachi Environmental Innovation 2050”
P.34
Expand the environmental contribution business• Reduction in CO2 emissions at workplaces• Reduction in CO2 emissions from products and services• Reduction rate in water use per unit
• Reduction rate in waste and valuables generation per unit
• Value creation story in five sectors and the Automotive Systems
business
P.52-69●

Hitachi provides systems and solutions that make society and corporate
activities more robust, thereby contributing to a more resilient society.

Human rights
Employee health andsafety●●Sustainability

Safe and secure
lifestyles

Hitachi’s mission in the Social Innovation Business is to achieve asustainable society by taking on the challenges of climate change, a circular
economy and the efficient use of resources. In response to climate change,
which is a particularly urgent issue, we will expand solutions for targeting
decarbonization.

Expansion of the Lumada business
P.28, P.36
• Increase Lumada revenues and adjusted operating income• Utilize the Lumada Solution Hub● Enhance human resources and technologies that support thegrowth of Lumada• Develop digital talent, and encourage participation of diverse
human resources (D&I)• Create learning opportunities • Strengthen R&D● Expand value and innovation from co-creation, and entrench thisapproach inside and outside of the Company• Expand co-creation centers• Expand partners in the Lumada Alliance Program• Increase awareness and understanding of the Hitachi Group identity●

Value Creation

Responding to climatechangeRelevant SDG

Vision

The world is undergoing a variety of changes, such as climate change
and resource shortages, aging populations and urbanization. Furthermore,
Social innovations using
society and the economy have changed dramatically amid the global
digital technologies and
COVID-19 pandemic.
AI
Hitachi creates new value for society by providing solutions that respondto a variety of challenges faced by society and the customers who arebeing confronted by these changes. This is the essence of Hitachi’s Social
Innovation Business.
Creating value throughCo-creation with customers and partners is essential in responding to theseco-creation withchanges quickly and efficiently. Through collaboration, we will expand social
customers
innovations that leverage Lumada. As a result, Hitachi will help realize asustainable society.

Initiatives/KPIs

19

The Value Creation Process
Vis

Realize a Sustainable Society through Improving

INPUT(FY2020)

Human capital

Provide solutions focu
the Environment, Resilienc

Diverse and global talent that can resolve
social issues

301,056
46%
Investment in education per employee 66,900 yen
Number of employees (consolidated)*

Co-creation with cus

Overseas employee ratio

Intellectual capital

Technologies/co-creation platforms to ensure
global competitiveness293.5 billion yen
R&D staff*
2,650
Customer co-creation centers*
11
R&D investments

IT

EnergyIndustry

Manufactured capital

Production/business processes
enhanced through IT

359.8 billion yen
approximately 400

Capital expenditure
Manufacturing bases

OT

IT

Social and relationship capital

Co-creation

Partnerships for creating value
through co-creation
Lumada Alliance
Program partners

More than 40 companies

Investments in start-ups
Funding for social
contribution activities

Industrial and Bus

cumulative

7 companies

Digital Innovati

1.9 billion yen

Natural capital

Source of value creationand competitive superiority

Efficient use of resources
Total energy input(crude oil equivalent)

61 projects(1.51 GL)

3,066 kt
26.35 million m³
Total chemical substances handled
56.4 kt
Raw material input
Total water input

Financial capital

Financial platforms and investments
for creating value
Hitachi, Ltd.
stockholders’ equity
Interest-bearing debt
Growth investment

Sustainable growthstrategies

Expand Revenues by Accelerating
the Social Innovation Business P.28

Foundations supporting
sustainable growth

Addressing Risks
and Opportunities

Corporate Governance

Hitachi Integrated Report 2021

PromotiOccupatP.82

3,525.5 billion yen
2,397.3 billion yen
1,700 billion yen

MISSION

Contribute to society th
original technology andNote: The total number of employees on a consolidated basis, the number of R&D staff, and the number of customer co-creation centers are as of the end of fiscal 2019. The number of manufacturing bases is as of April 2020

20

P.70

ion

Quality of Life and Adding Value for Customers
VisionOUTCOME

using on three fields:ce, and Security & Safety

Simultaneously increase social,environmental, and economic value
Diversification and globalizationof Human Capital(FY2020)

Value Creationstomers and society

Diversity and inclusion (D&I)

9.5%
11.6%

Ratio of female managers
Ratio of non-Japanese executive
and corporate officers

Mobility

Smart Life

Automotive
Systems

10.1%

Ratio of female executive
and corporate officers

Digital talent

Increase of 5,000 persons
Total: 35,000 persons

62%

Sustainability

Engagement indicatorin employee survey

Increase competitive superiority
to expand business

Products

n Methods

Lumada business revenues

1.1 trillion yen

Number of cases registeredin the Lumada Solution HubMore than 100

Lumada customer cases

More than 1,000

Lumada solution coreMore than 85

Expand the use of Lumada in-house
Application cases for internal IT services

Number of publishedof patent applications

ion Platform

257 cases

Governancesiness Expertiseapprox. 10,000

Reducing environmental burden (vs. fiscal 2010)

ing Information Security

P.77
tional Health and Safety, Employee Health

P.78

P.36

Reinforce Management System
to Improve Profitability P.46

Value Chain
Responsibilities

P.79

Quality Assurance P.80
Compliance P.81

39%
24%
14%
33%

Accumulate resources for growth and returns
Core free cash flows

rough the development of superior,products.

20%

Data

Enhance Global Competitiveness

Reduction in CO2 emissions
from products and services
Reduction rate in total CO2
emissions at business sites(factories and offices)
Reduction rate in water use per unit
Reduction rate in waste
and valuables generation per unit
Reduction rate in chemical
atmospheric emissions per unit

Total dividends
Total shareholder return419.8 billion yen
101.5 billion yen+106.4%(past 5 years)

21

Looking Back on Past Mid-term Management Plans

Trends in Performance*
Revenues

Net income attributable to
Hitachi, Ltd. stockholders(billion yen)

Cash flows margin from operating activities

my

9,000

s

risi

al c

ci
nan

12,000

1

199

End

he
of t

ble

bub

no
eco

n
apa

in J

i

7F

199

s

risi

al c

ci
nan

l

mp

le i

0 IT

200

b
bub

on
osi

11,226.7

8

200

E
pan

ke

(%)

qua

arth

al fi

b
Glo

Adjusted operating income ratio
10

t Ja

9.1

re

1G

201

as
at E

9,500.0
7.9
7.8

88,729.1

6

5.7
600
550.0

501.6

4

300
2

0

0

FY1990FY2000FY2010

FY2020(2)(300)(327.6)(483.8)(600)(787.3)(900)

Business Portfolio
Reforms

2012 Mid-termManagement Plan
FY2010-20122015 Mid-termManagement Plan

2018 Mid-termManagement Plan

FY2013-2015

FY2016-2018

2021 Mid-termManagement Plan
FY2019-2021a2016• Lumada business launch

Expanding theLumada business
(IT)

2014

2018

2020

• Prizm Payment Services• REAN Cloud• FusioTech(Payment services)(Services related to the public cloud)2021• Pentaho• GlobalLogic(Data analytics)

2015• AnsaldoBreda・Ansaldo STS

Strengthening thebusiness portfolio(OT/Products)(AI and data analytics)

2015(Digital engineering)

2017

2019

2020

• Sullair• JR Automation• Hitachi High-Tech(Industry)(Mobility)(Industry)• Chassis Brakes
International(Automotive Systems)(Smart Life)• Hitachi ABB Power Grids(Energy)• Hitachi Astemo(Automotive Systems)

Divestment/
reduction ofbusinesses

2012

2014

• Transferred the hard disk drive business• Reduced the small- and medium-sized display
business• Terminated in-house production of flat-panel TVs• Converted the thermal power• Converted the air-conditioning
generation systems business into systems business into an equityan equity-method associate
method associate• Deconsolidated Hitachi Maxell*Figures of fiscal 2021 were announced on July 30, 2021

22

Hitachi Integrated Report 2021

2015

2021
• Transferred the diagnostic
imaging-related business2012 Mid-term Management Plan

2015 Mid-term Management Plan

FY2010-2012

FY2013-2015

Rebuilding Management

Building a Foundation for Growth

Recovery

The Swapping Out of Businesses
Hitachi during the period covered by the 2015 Mid-term Management Plan
substantially revised its business portfolio as it sought to build a foundation
for growth. The Company acquired Pentaho, which develops and markets big
data analytics software, as part of its aim to strengthen and expand the global
value chain in big data utilization, while also removing from consolidation its
thermal power, air-conditioning, and batteries businesses. In addition, Hitachi
moved its rail business headquarters to the U.K. as part of its effort to promote
the globalization of the Company, appointing Alistair Dormer, currently serving
as executive vice president, as the global CEO of the Company’s rail business.
In personnel evaluation systems, Hitachi introduced “Global Performance
Management” as a mechanism under which compensation directly reflects
personal performance assessments as well as the global common standards
for job roles.
In fiscal 2015, the last year in the mid-term plan, the target was not achieved
due to a delayed response to changing market conditions, including in
the telecommunication and networks business, as well as losses due
to insufficient management at a large overseas project. Another factor
contributing to underperformance was the greater-than-expected increase instructural reform costs due to an acceleration in structural reforms following adeterioration in the market environment for the infrastructure systems, power
distribution, and construction machinery businesses. However, operating
income reached 600 billion yen, with the operating income ratio at 6%,
signaling stability in profitability and an improved ability to generate cash.

Challenges Ahead• Further improvements in business profitability• Strengthening the service businesses• Global business development and establishing a management base thatmakes that possible

Sustainability

After booking its largest losses ever in fiscal 2008, Hitachi during the period
covered by the 2012 Mid-term Management Plan advanced the rebuildingof its business. The rebuilding of the automotive systems business, thewithdrawal from the internal manufacturing of flat-panel TV business, andthe transfer of the HDD business all served to improve profitability, allowing
Hitachi to concentrate on the Social Innovation Business that so effectively
leverages the Company’s strengths.
In fiscal 2012, Hitachi consolidated operations into six strong groups andworked to speed up management through an integration of operations.
Hitachi’s operating income ratio in fiscal 2012, the final year of the Mid-termManagement Plan, fell short of the 5% target due to a write-off associatedwith a sharp drop in material prices, as well as the booking of structuralreform costs and reduced capacity utilization amid the economic slowdown in
China and Europe.
However, it improved to 4.7% thanks to cost structure reforms in line with the
Hitachi Smart Transformation Project. In addition, after dropping to 11.2% in
fiscal 2008, the stockholders’ equity ratio recovered to 21.2% in fiscal 2012,
while the D/E ratio narrowed to 0.75x over the same period, indicating a clear
improvement in Hitachi’s financial position as the Company worked toward
the establishment of a stable earnings base.

Value Creation

Looking Back

VisionLooking Back

Challenges Ahead• Accelerate management’s speed to more quickly respond to changes in themarket environment• Strengthen project management• Take action regarding unprofitable businesses

2018 Mid-term Management Plan
Governance

FY2016-2018
Achieving Growth in Social Innovation

Utilizing Digital Technologies
Looking BackTo add to this, we launched Lumada in May 2016. Lumada takes the essential
technologies for delivering advanced solutions, including AI, analytics, security,
robotics and control technologies distributed across the Company and applies
them to a common platform, creating a system that comprehensively andorganically leverages the resources of the entire Hitachi Group to quickly
and flexibly create new innovations. Thanks to a steady increase in customer
collaborations, Lumada business revenues are trending as planned and havealready exceeded 1 trillion yen.
Moreover, in addition to reorganizing our business portfolio, including selling
off listed subsidiaries with little connection to the core Social Innovation
Business, we continued to reform our cost structure, which contributed tothe adjusted operating income ratio meeting our Mid-term Management Plan
target and reaching a record level.

Data

With the goal of strengthening front-line functions, including the numberof sales, system engineers, and consultants, and creating a system ofcollaborative cooperation with our customers, Hitachi from fiscal 2016 moved
from a product-specific company system to a three-level system, composedof front-line, platform, and product tiers. With the three-level system, Hitachi
bolstered the management speed. Specifically, business units (BUs), which
had been subdivided from the former in-house companies to develop andprovide services closely to the customer, and group companies, including
listed subsidiaries, were positioned to each level. We also strengthened
project management and worked to improve profitability at individual
businesses. With the aim of enhancing on a global basis the front-linefunctions central to the Social Innovation Business, we acquired 100% stakesin Ansaldo STS, which supplies signal equipment and control systems to 30
or more countries and regions, and Sullair, which manufactures, sells, andservices air compressors to about 4,000 customers, mainly in North America.
In December 2018, we signed an agreement for the acquisition of ABB’s
power grids business. The goal of each of these is the acquisition of a robust
global sales network and the expansion of the Social Innovation Business.

Challenges Ahead• Aggressive investment in key areas of focus• Improved capital efficiency• Accelerated innovation and active use of digital technologies with a focus
on Lumada

23

Strategy and Resource Allocation

2021 Mid-term Management Plan
(FY2019-2021)
In the 2021 Mid-term Management Plan, which ends in fiscal 2021, Hitachi put forward the goal of realizing asustainable society by being a global leader in the Social Innovation Business. To achieve this goal, we will focus on
three fields—the Environment, Resilience, and Security & Safety—as we contribute to resolving social and corporate
management issues, and strive to improve value for customer companies and quality of life for people everywhere.

Improve Quality of LifeAdd value for customers

Socialvalue

Environmental
value

Economic
value

Resolve social and management issues byfocusing on three key areas
Environment

Resilience

Security & Safety

Business Performance
FY2019 results

8,767.2 billion yen

Revenues

FY2020 results

8,729.1 billion yen

FY2021 forecast*

9,500.0 billion yen

Adjusted operating income / ratio

661.8 billion yen / 7.5%

495.1 billion yen / 5.7%740.0 billion yen / 7.8%

EBIT / EBIT ratio

183.6 billion yen / 2.1%

850.2 billion yen / 9.7%820.0 billion yen / 8.6%

Net income attributable to Hitachi, Ltd. stockholders

87.5 billion yen

Overseas revenues ratio
Cash flows from operating activities
ROIC

501.6 billion yen

550.0 billion yen

48 %

52 %

—

560.9 billion yen

793.1 billion yen

750.0 billion yen

9.4 %

6.4 %

8.3 %

FY2019 results

FY2020 results

FY2021 forecast*

Performance by Segment
Segment

Item
Revenues

IT

Energy263.0 billion yen / 12.0%

EBIT / EBIT ratio

214.4 billion yen / 10.2%

244.8 billion yen / 12.0%

246.0 billion yen / 11.2%

ROIC

18.4 %

17.8 %

Revenues

399.2 billion yen

Adjusted operating income / ratio

13.5 billion yen / 3.4%

(47.7) billion yen / (4.3)%

30.0 billion yen / 2.3%

(375.7) billion yen / (94.1)%(55.5) billion yen / (5.0)%

37.0 billion yen / 2.8%

EBIT / EBIT ratio

1.9 %

830.1 billion yen

850.0 billion yen

Adjusted operating income / ratio

54.7 billion yen / 6.5%

45.5 billion yen / 5.5%

69.0 billion yen / 8.1%

EBIT / EBIT ratio

57.8 billion yen / 6.9%

42.3 billion yen / 5.1%

59.0 billion yen / 6.9%

8.6 %

6.1 %

8.7 %

1,144.4 billion yen

1,199.6 billion yen

1,250.0 billion yen

Adjusted operating income / ratio

92.3 billion yen / 8.1%

74.7 billion yen / 6.2%

102.0 billion yen / 8.2%

EBIT / EBIT ratio

112.3 billion yen / 9.8%129.0 billion yen / 10.8%

124.0 billion yen / 9.9%

ROIC

11.3 %

8.9 %

2,167.6 billion yen

1,252.7 billion yen

10.2 %
1,000.0 billion yen

Adjusted operating income / ratio

118.9 billion yen / 5.5%

79.4 billion yen / 6.3%

97.0 billion yen / 9.7%

EBIT / EBIT ratio

90.0 billion yen / 4.2%

202.1 billion yen / 16.1%

150.0 billion yen / 15.0%

ROIC

8.0 %

8.7 %

10.8 %

Revenues—

987.5 billion yen

Adjusted operating income / ratio—

34.7 billion yen / 3.5%

97.0 billion yen / 6.1%

EBIT / EBIT ratio—

4.3 billion yen / 0.4%

76.0 billion yen / 4.8%

ROIC

—

3.1 %

6.3 %

*Announced on July 30, 2021

24(2.7)%

12.7 %
1,320.0 billion yen

840.7 billion yen

Revenues

Automotive
Systems

6.4 %1,107.9 billion yen

Revenues

ROIC

Smart Life

2,200.0 billion yen

269.4 billion yen / 13.2%

Revenues
Mobility

2,048.7 billion yen

249.4 billion yen / 11.9%

ROIC

Industry

2,099.4 billion yen

Adjusted operating income / ratio

Hitachi Integrated Report 2021

1,600.0 billion yen

Inputs for Promoting Strategy●

Expand Revenues by Accelerating the Social Innovation Business

Grow Highly Profitable Businesses
with Digital Technology• Achieve Robust Growth in the Lumada
Business• Further Acceleration of Global Rollout• Hitachi’s Strengths in DX for Social
Infrastructures• Strengthening and Training Talent That
Drives the Social Innovation Business• Examples of Value Creation throughLumada Solutions• Expanding the Social Innovation Businessby Entrenching the Value of Co-Creation

Creation of Social and Environmental
Value• Realization of a Decarbonized Society

Strategy 2●

FY20201,037.0 billion yen

1,110.0 billion yen

Lumada core business593.0 billion yen

672.0 billion yen

Lumada related business444.0 billion yen

438.0 billion yen

Revenues of Lumada businessOver 1,000

Customer cases

Over 85

Solution cores

30,00035,000Approx. 40%

Approx. 30%

Reduction rate in CO2 emissions per unit
(products and services) (compared with FY2010)

19%

20%

Reduction rate in total CO2 emissions
at business sites (factories and offices)(compared with FY2010)

17%

39%

Reduction rate in water use per unit
(compared with FY2010)

26%

24%

Reduction rate in waste and valuables
generation per unit (compared with FY2010)

14%

14%

FY2019FY2020R&D expenses to sales revenues ratio

3.4%

3.4%

Ratio of non-Japanese executives*

8.6%

11.6%

Ratio of female executives*

7.1%

10.1%

Number of female managers

700

768

Engagement indicator of employee survey

60%

62%

Digital talent
Lumada overseas revenue ratio

Sustainability• Become a Climate Change Innovator

FY2019KPI

Value Creation• The Chain of Value Creation and Expansion
to Ecosystems That Initiate Cycles●

VisionStrategy 1

Enhance Global Competitiveness

Hitachi’s R&D—Value-based Innovation• The Strength of Hitachi’s R&D• Strengthening R&D and Future Directions

KPI• Value-based R&D• Further Evolution of Lumada

GovernanceInitiatives in Intellectual Properties(IPs)● Global Human Capital that Provides
Value to Society through the Social
Innovation Business●*Executive officers, Corporate officers, and Fellows• Global Human Capital Management Strategy• Diversity & Inclusion• Target and Actions for Diversity & Inclusion• Framework for Global Human CapitalManagement• Building Workplaces That Offer Job
Satisfaction

Reinforce Management System to Improve Profitability

Progress of ROIC Management
Financial and Capital Strategy● Capital Allocation● Strengthening the Management
Base through the Standardizationof Global Operations
●
●

Data

Strategy 3

KPI

FY2020FY2019

ROIC

9.4%

6.4%

Adjusted operating income ratio

7.5%

5.7%

560.9 billion yen

793.1 billion yen

Approx. 200.0 billion yen

Approx. 1,700.0 billion yen

Operating cash flows
Growth Investment

25

COO Message

Creating a Growth Story for the Next 10 Years
with the Lumada Business at the CoreQ

You were appointed President and COO in
June of this year. Can you tell us about
your aspirations for this position?

For about 10 years following the financial crisis that began withthe collapse of Lehman Brothers, successive management teams
implemented drastic structural reforms to transform Hitachi into
a global company. They took a number of steps to accomplish
this, one of the most prominent examples was the restructuringof the company’s business portfolio. Now that these structuralreforms have had time to take effect and serve as the foundation
for growth, we are approaching a business portfolio that is wellequipped for future success. My mission is to create a path for
Hitachi’s continued growth over the next 10 years based on thisfoundation. This is very satisfying and meaningful work.
Back when I was serving as CTO, Mr. Nakanishi, the former
Executive Chairman, communicated a strong message to me
when he told me that “the Social Innovation Business is Hitachi’score.” This stuck with me and ever since I have worked to
execute reforms at research laboratories worldwide to strengthen
Hitachi’s innovation capabilities. First, I undertook a major change
in direction as I prioritized creating an R&D structure close tosociety and the customers. Specifically, rather than using theconventional approach of creating products as an extension of
fundamental research and elemental technologies, I encouraged
an approach of identifying social issues and back-casting fromfuture forecasts to define our key research themes. Ever since webegan the Lumada business in 2016, we have invested immense
energy into expanding this business. Since my first encounter
with database research, I have been confident that data was animmensely valuable resource which would be a driving force that
could change the world. Now that we are approaching the final
form of the business portfolio, we will create and follow a pathin which the Lumada business serves as a driver for Hitachi toachieve the next stage of growth.

Q

Keiji Kojima
President & COO

26

Hitachi Integrated Report 2021

Please tell us about the direction and key
initiatives driving the creation of the next
Mid-term Management Plan.

To guide future growth, we must tie the assets acquired
through large-scale M&As into a comprehensive plan tosteadily increase corporate value. The key words in thisregard are simplicity, digitalization, and globalization ofmanagement.

Moving forward, what are the main markets
and fields where you expect to see the most
growth in the Lumada business?

The markets where I expect to see the most growth areNorth America and India. North America—particularly theUnited States—is investing aggressively in infrastructure,and various domestic industries are seeing a recovery, so I
see this as a growth market with huge potential. India, which
has become the world’s largest source of digital talent, isalso a key area that we approach alongside North America
as we work to expand the Lumada business. Japan also
has many companies that create outstanding products, so I
think this market has great potential as well.
The sectors that demonstrate the greatest growth potential
include the Industry sector and the Smart Life sector,
especially the field of genetic engineering, which includes
regenerative medicine and iPS cells.

Q

Sustainability

In closing, please tell us President
Kojima’s guiding principles, andgive us a message for stakeholders.

Hitachi’s core principle of contributing to society throughthe power of technology remains unchanged. W iththat in mind, I will continue my unwavering efforts tomaintain a bird’s-eye view of all technological innovation
as it unfolds—not only Hitachi’s technologies but also
technologies in completely different fields—and toconstantly monitor those trends. This approach has been
shaped by my own pride as a researcher.
I can declare without fear that we will undoubtedly
achieve our goal of recording “10 years of growth”
moving forward, and I will embody in my actions themotto “Always follow through on your promises,” which
I once saw displayed at the Central Research Laboratory
and which has become a central part of my philosophy.
During this coming decade of growth, one major theme
will be to enhance returns to all stakeholders, including
shareholders, investors and employees. My goal is to gain
people’s understanding and support by communicating
my own thoughts on matters such as growth strategies
and to comment on the progress of those strategies in atransparent and easy-to-understand way.

Governance
Data

To me, the starting point for Lumada is co-creation withcustomers aimed at resolving social issues. When we began
Lumada, we said that researchers would share social issues
with customers and undertake co-creation to resolve thoseissues, and then transfer the insight gained from theseframeworks and systems to the business side, to provide themin the form of the Social Innovation Business. Up to now, wehave expanded co-creation-style SI with a particular focus
on the IT sector and have used this approach to vigorously
promote the Lumada business. The IT sector has grown tothe point where it currently generates about half of Hitachi’s
income, but it only accounts for about 20% of sales. Our nextmanagement goal is to accelerate the digitalization of projectand design/manufacturing assets, which account for most of
the Hitachi Group’s sales. Digitalization is moving forward inbusinesses that demonstrate a strong affinity with the Lumada
business, such as the Building Systems Business Unit.
However, from this point onward we will go one step further,placing all of Hitachi’s businesses on the Lumada platform toaccelerate growth. In addition, we need to promote full-scale
globalization, mainly through Hitachi Vantara, which drives theLumada business on a global scale. In that sense, I would
say that right now, we have achieved 30% or 40% of our“aspirations.”
Hitachi ABB Power Grids, which we acquired last year, ispositioned not as a business in the Energy sector but rather
as a core business that supports the environment, one ofQ

Value Creation

Q

You said that the Lumada business holds
the key to growth. How much progress do
you think has been made toward realizing
the future vision for this business?

the three fields where we can demonstrate growth throughLumada. As we move forward toward our goal of carbon
neutrality for the Hitachi Group as a whole, Hitachi ABB Power
Grids has an important role to play as a crosscutting businessthat creates synergies with all sectors. GlobalLogic is similar inthat its business demonstrates great value and synergies withall sectors. We will link these newly secured resources with all
our businesses while working to accelerate global expansion
and growth in the Lumada business.

VisionHitachi’s business can be separated into three maincategories: IT, projects, and design/manufacturing.
Management must be simple to ensure the efficient useof assets characterized by different risks and growthmechanisms. Acting with speed is also crucial in achieving
continued growth that keeps pace with changes in the world
at large. Finally, the effective use of digital technologies inmanagement is key to increasing speed.
The structural reforms that Hitachi has implemented havebeen executed to achieve global growth. We are promoting
integration with overseas companies that have recently
joined the Hitachi Group, including Hitachi ABB Power Grids
and GlobalLogic, and we are making a full-scale shift toward
management from a global perspective. We are building
an operational structure that will enable us to demonstrateeffective Group synergies, while at the same time preserving
the speed and culture of a top global company. To do this,even as we press forward with the globalization of existing
Head Office functions, we will further accelerate growthby establishing smaller global corporate functions in eachregion to complement those Head Office functions.

27

Strategy 1 Expand Revenues by Accelerating
the Social Innovation Business
Using data to pick up on signs of change, we will create new value with customers for the next stage of society, as part ofour efforts to achieve social innovations that increase the corporate value for customers and the quality of life for people
everywhere. This is the essence of Lumada. Leveraging the strengths of Operational Technology (OT) × Information Technology(IT) × Products that Hitachi has cultivated over many years, we will accelerate the Social Innovation Business using Lumada ona global scale.
In 2020, due to the COVID-19, the global business community faced a major turning point, and a variety of hidden social issues
came to light. Digital solutions that take full advantage of digital technologies such as AI and IoT are essential in this era of the
new normal. By building new partnerships that transcend the boundaries of various industries, we will provide even greater value
to society.

Grow Highly Profitable Businesses with Digital Technology
Achieve Robust Growth in the Lumada
Business
The Lumada business has a high adjusted operating income
ratio (more than 10%), and revenues are increasing. We posted
revenues of 1.11 trillion yen in fiscal 2020 and expect 1.58
trillion yen in fiscal 2021. Moving forward, through integration
with GlobalLogic, for which the acquisition was completed
in July 2021, we will strive to capture growth in the rapidly
expanding global market for digital transformation to achieveboth high business growth and profitability with revenues of
3 trillion yen and adjusted operating income of 500 billion yen
in fiscal 2025.
In the Lumada business, we leverage the expertise that Hitachi
has accumulated in the fields of OT (operation and control
technologies), IT (including AI and analytics) and products(including industrial devices, rolling stock, and elevators, etc.)
to provide digital solutions that resolve customers’ issues andincrease social, environmental and economic value.
The Lumada business comprises the Lumada core businessand Lumada related businesses. The “Lumada core business”
is a digital solutions business that solves management andbusiness issues by converting customer data into value using

Lumada Business Revenues(billion yen)

Lumada core business
Lumada related business

1,580.0

YoY

1,037.0+7%

1,110.0

+42%

680.0

438.0

444.0

900.0
593.0

672.0

FY2019FY2020

FY2021 (Forecast)

Listed subsidiaries

16%
Smart Life

7%
Mobility

Component ratio ofLumada businessrevenues by segment
in FY202020%
Industry

13%
28

Hitachi Integrated Report 2021

IT

40%

Energy4%

AI and other digital technologies. “Lumada related businesses”
are defined as advanced products and systems businesses,
centered on OT and products that have prospects for synergies
with the Lumada core business.
In the railway systems business, for example, OT and productdata are collected through sensors installed in rolling stock,signaling systems, and other elements positioned as Lumada
related businesses, and these data are analyzed using thedigital solutions that represent the Lumada core business todetect signs of failure. This enables efficient maintenance toprevent failures before they occur and to increase operating
rates. In this way, digital solutions enable a shift toward highvalue-added, high-profit operations in the related OT and
Product businesses.
By undertaking both the Lumada core business and Lumada
related businesses while using the domain knowledge andassets cultivated through the five sectors and at Hitachi
Astemo, we will deepen the integration of OT × IT × Products
and expand these businesses.
In April 2021, Hitachi was authorized by the Japanese Ministryof Economy, Trade, and Industry as a “DX-certified operator.”
In June 2021, we received the DX Grand Prix 2021 award in“Digital Transformation Brand 2021,” which is selected by the
Ministry of Economy, Trade, and Industry and the Tokyo Stock
Exchange. This award recognizes that Lumada has been used
to support the acceleration of DX for customers and society,and that it has already tied into the rollout ofglobal business, demonstrating that DX isan engine for changing entire companies. We
see this as the most significant recognition
yet that Hitachi itself continues to undergo
a transformation through the Lumada
business.
Lumada is used in a wide range of operational
fields at Hitachi, including sales, procurement, production,
maintenance, and management. In fiscal 2020, there was acumulative total of 257 examples of applications related to inhouse IT services, more than twice the number in fiscal 2018.

Further Acceleration of Global Rollout“Chip-to-Cloud” engineering capabilities, from the chips thatgather frontline data and offer control functions to the extraction
and analysis of data in cloud environments. GlobalLogic
has a track record of providing solutions to more than 400
customer companies in industries including healthcare,telecommunications, manufacturing and automobiles.
Moving forward, Hitachi and GlobalLogic will target thecustomer bases of both companies, starting with the crossselling of services that leverage their respective strengths
and then utilizing the software assets accumulated throughthe Lumada business. By utilizing Lumada’s existing assets,
GlobalLogic will not only apply its current business model,
in which unit prices are based on worker hours, but also
undertake the broad rollout of business based on the use ofsoftware assets. We will use GlobalLogic’s digital engineering
capabilities to increase the added value of Hitachi’s broad
ranging products and will strive to develop new Lumada
solutions by combining these products with software createdthrough co-creation with customers. There is a substantial
market for these solutions, and we plan to promote themin Europe and North America, where Hitachi has alreadyestablished a track record. GlobalLogic will undertake these
activities in collaboration with Hitachi ABB Power Grids, Hitachi
Rail, JR Automation and other Hitachi entities.

VisionValue Creation
Sustainability

Up to now, Hitachi has acquired industry expertise and OT
assets through M&As, as part of efforts to build a strong global
business portfolio. In July 2020, we completed the acquisitionof ABB’s power grids business and established Hitachi
ABB Power Grids. In May 2020, Hitachi High-Tech, which
has outstanding measurement and analysis technologies,
was converted into a full subsidiary, and in January 2021,
we launched Hitachi Astemo through the integration of
Hitachi Automotive Systems with three Honda affiliates: Keihin
Corporation, Showa Corporation, and Nissin Kogyo Co., Ltd.
In the overseas home appliance business, we established ajoint venture with the Turkish company Arçelik in July 2021.
In terms of the framework for promoting Lumada, the new
Hitachi Vantara (formed in January 2020 through the integrationof the American subsidiary Hitachi Vantara with Hitachi
Consulting Corporation) has driven the growth of business andthe creation of global strategies for the Lumada business, incollaboration with the Hitachi Group as a whole.
Further accelerating the growth of Hitachi’s Lumada business
requires talent to undertake co-creation with customers
throughout the world and digital engineering capabilities tofurther accelerate development. The American company
GlobalLogic, which was acquired in July 2021, is a leading
company in the rapidly growing digital engineering service
market. It has more than 21,000 employees in 14 countries
around the world who develop and provide solutions with anemphasis on co-creation with customers at 30 development
bases, along with eight co-creation bases mainly in Europe andthe Americas. It demonstrates advanced and broad ranging

Delivering Digital Value on a Larger Canvas, Hitachi
Governance

GlobalLogic has partnered with some of the world’s top brands, including many of “Fortune
500” companies. As our customers and partners, they have leveraged our digital engineeringexpertise to create innovative products, new platforms, and amazing experiences. Together
we have been able to create innovations with greater added value through our design anddigital engineering–helping clients see the world not as it is, but as it should be.
We are delighted to join Hitachi, one of the most trusted engineering brands in the world.
Hitachi and GlobalLogic understand IoT and digital technologies well and are using themto innovate digital solutions that benefit society. In addition, Lumada’s basic concept of“developing a platform and building an ecosystem that maximizes the value of design,
engineering, and data application technologies” is actually the very same approach as we take Shashank Samant
when we build solutions for our clients.
CEO, GlobalLogic, Inc.
I am convinced that the coming together of these two companies, which share the same
purpose, passion, and vision, will be a very powerful combination that will bring innovation to society through digitaltechnology.
Furthermore, while our strength lies in engagement systems in areas close to consumers, Hitachi has a large customer
base around the world, especially in the industrial sector.
Therefore, we ourselves can contribute to the Lumada customer cases, and we believe that we can leverage Lumada in
the future.
By joining together with Hitachi, we have expanded our canvas to a more global scale and Hitachi will enable us to realize
our vision for the next five to seven years ahead of schedule, and through these synergies with Hitachi, we will provide
new value to society.

Data

29

Strategy 1

Expand Revenues by Accelerating the Social Innovation Business

Hitachi’s Strengths in DX for Social
Infrastructures “Mission-Critical IoT”
Hitachi’s strengths in the realization of the digital transformation
for social infrastructures lie in its ability to provide missioncritical IoT, which is at the core of applications that resolve
both social and corporate management issues. We also use
our broad-ranging product lineup to gather data from physicalspace into cyberspace (the cloud) and to analyze the data
gathered through GlobalLogic’s digital engineering capabilities.
Furthermore, controlling physical space in real time basedon the results of data analyses requires mission-critical SI
skills and expertise. Hitachi will leverage these strengths toaccelerate the digital transformation for social infrastructures.

Expanding company-wide Lumada business by providing total solutions ranging
from products to DX applications which digitally optimize social infrastructure

Cyber Space(Cloud)Environment

Resilience

Security & Safety

Containers

Containers

Containers

DX Application

DX Application

DX Application

The strengthsof GlobalLogic(innovativeness)

Lumada Solution Hub

Problem-solving Applications
Data

Physical Space

Real-time Control

Mission-critical Systems

Security

Digitalized OT Assets

The strengths of
IT Sector/Hitachi (reliability)

The Chain of Value Creation and Expansion to
Ecosystems That Initiate Cycles
Hitachi has undertaken three initiatives to expand Lumada’s
co-creation activities and the use of digital solutions, and topromote a chain of value creation and ecosystems that initiate
positive cycles: the Lumada Solution Hub, which connects
solutions and technologies; the Lumada Alliance Program,which connects partners; and Lumada Innovation Hub, whichconnects knowledge and ideas.
There are more than 100 solutions currently registered in the
Lumada Solution Hub, which was kicked off in April 2019. The
Lumada Alliance Program, which started in November 2020,
already has more than 40 member companies that support
the vision of “Contributing to the continuous development ofsocieties and economies and to improving people’s quality oflife by creating new value from data through the mutual useof alliance members’ technologies, expertise, and ideas, andthen creating a cycle of value that results in mutual growth for
all parties involved.” In April 2021, the Lumada Innovation Hub
Tokyo opened as a venue for new open innovations, further
contributing to these applications.
Hitachi promotes the use of existing assets including advanced
digital technologies and customer cases cultivated up to now,
applying and enhancing these assets in the form of Lumada
solutions for a variety of fields. At the same time, throughopen innovations with partners transcending the boundaries
of industries, we are building and expanding an ecosystem

30

Hitachi Integrated Report 2021

that resolves a variety of social issues and generates a chainof value creation.

Strengthening and Developing the Talent toDrive the Social Innovation Business
Diverse global talent is essential in responding to increasingly
diverse social issues in the Social Innovation Business. We
are accelerating Diversity & Inclusion activities to enable every
Hitachi employee to demonstrate that value and to support
Hitachi’s growth. We also actively promote activities aimed atstrengthening and developing the digital talent that drives DX,
so that they can handle the core digital solutions that combine
OT and IT, and accelerate the Social Innovation Business on a
global scale.
Hitachi has built new training systems for digital talent,
including front-office staff and data scientists, and offers
human resource development through programs that combine
classroom courses and on-the-job training (OJT). Startingwith new graduate hiring in fiscal 2021, we have enhanced
our ability to secure outstanding manpower through a “digitaltalent recruiting course” targeting R&D positions and data
scientists in the digital field, which allows compensation to
be set individually in accordance with an individual’s skills andexperience.
Our digital talent plan called for an increase from 30,000
persons in fiscal 2019 to more than 37,000 by the end of fiscal
2021, and the number had already reached 35,000 at theend of fiscal 2020. Specifically, we set targets of 3,000 data
scientists (data analysis specialists) and 350 Ph.D.-level R&D
staff with cutting-edge skills in AI and related technologies tobe recruited by the end of fiscal 2021, and these targets had
already been reached by April 2021.

VisionExamples of Value Creation through Lumada Solutions
Case

1

Achieving a DX Society through Advanced Payment Services
Hitachi installed communication terminals in rolling stock andbuses, as well as at train stations and bus stops, exchanging
positional information via apps installed in the passengers’
smartphones. In this way, we established a framework forautomatically calculating and collecting the passengers’ fares.
Passengers enjoy more comfortable transportation because
they no longer need to carry paper tickets or IC cards or stop
to pay fares before or after their ride. Public transportationcompanies can cut down on facilities such as ticket machines
and ticket gates, thereby reducing initial investments andmaintenance costs. Trentino Trasporti has decided to put these
services into operation from 2021.
In Japan, Hitachi is collaborating with ZENRIN CO., LTD.,
which has data and expertise related to map information, inthe development of MaaS for tourism. Together, we developed
an application for seamless operations on a smartphone,from searches for tourist routes to purchasing and payments
for transportation and tourism tickets based on positional
information. This service supports comfortable and convenient
tourism activities, as users can receive information that isuseful for both travel and tourism on a map, in keeping with
their current location and movement. The effects of this service
will be verified through proof-of-concept tests scheduled tobe conducted by ZENRIN in Nagasaki City in 2021. Together,
we are working to build and provide service platforms that are
ideally suited to the needs of each individual tourist.

Value Creation
Sustainability
Governance

The realization of DX requires not only the digitalizationof information but also solutions with a view toward theprovision of new services based on data applications. With
the digitalization of social infrastructures, payment methods
are also changing, as cashless payments are rapidly gaining
popularity, for example, in the form of credit cards and QR
codes. There are high expectations for the provision of systems
that ensure safe and secure handling of important paymentrelated data and which are resilient even in the face of natural
disasters or failures, as well as the creation of services based onthat payment information which offer even greater convenience
for users. The IoT Payment Platform Service offered by Hitachi
combines knowledge of finances and settlements with IT
and OT, creating payment services that adapt to changes inuser lifestyles. Hitachi also offers support to vendors in theuse of data related to applications and operations, as wellas consultations when services are introduced. These are
solutions that Hitachi is uniquely equipped to provide, basedon its extensive experience with products and systems that
support people’s lives, including financial systems and social
infrastructures. These solutions also support the realization ofsmart cities and Mobility as a Service (MaaS).
Services using these platforms are already being tested andapplied throughout the world.
In proof-of-concept tests conducted jointly with the Italianpublic transportation operator Trentino Trasporti S.p.A.,

Create a new payment method with OT × IT × Finance
Deliver innovative payment as a service to improve financial safety, security and resilience
Smart home applianceHigh speed payment

Pay-as-you-go billing for smart home appliances

Payment by utilizing IoT sensors and high-speed communications

Medical bill

Dynamic pricing

Payment of medical bill for remote treatment
and diagnosis

Payment of building tenancy fee

IoT Payment
Gateway PF
OT×IT×FinanceConnected car

Data

Tenancy fee of building

Provision of best fare promise to users by forecasting pricetransition in accordance with supply and demand

Immediate pay-as-you-go billing forconnected car usage

Automatic delivery

Electricity bill

Payment of shipping fee for automatic delivery

Payment of electricity usage fee by smart meter

MaaS

Environmental value trading

Automatic payment for digital ticketing

Renewables and emissions trading31Strategy 1

Case

2

Expand Revenues by Accelerating the Social Innovation Business

Creating Information Management Platforms for Regenerative Medicine

Products and technologies related to regenerative medicine
products are expected to open the way to new therapies fordiseases where no effective treatment methods are available. In
this field, Hitachi has constructed a platform for the integrated
management of cell and tracing information throughout theentire value chain.
Regenerative medicine products are unique in that cells
collected from patients or cell donors are incubated and theninjected to other patients. The safe and secure managementand distribution of cell and tracing information required theconstruction of a new and unprecedented supply chain
structure.
Hitachi has focused on the issues involved in the developmentof regenerative medicine products in the healthcare field andhas developed and constructed these platforms through cocreation with various partners, including Alfresa Corporation,a Japanese ethical pharmaceutical wholesaler, as well asother pharmaceutical companies and medical institutions.
Specialized knowledge from Alfresa is used in the transportand storage of patients’ cells and regenerative medicine
products; from consigned manufacturers in the development of

manufacturing methods and the manufacture of experimental
drugs and regenerative medicine products; and frompharmaceutical companies and bio ventures in all processes
and information tracing from the collection of patients’ cells
to the administration of regenerative medicine products. To
ensure applicability, we strived for specifications that can beused as a standard by a broad range of stakeholders; forexample, we conducted studies referring to actual operations
and incorporated the opinions of healthcare professionals into
the development of user interfaces.
In addition, we use Hitachi’s digital twin solution, a Lumada
solution, as an information platform for extracting, using, andanalyzing OT data, such as information on equipment operation
status and quality, and IT data, including planning and inventory
management. By connecting the workplace data and IT data ina digital space, it becomes easier to conduct continuous andtimely AI-based analyses and simulations, so it is possible toprovide and support in keeping with customer needs, even in
the case of services for increasing efficiency and productivity
through analyses and simulations with a view toward allprocesses, from cell collection to drug administration.

Overview of the regenerative medicine products value chain integrated management platform

Common Service Infrastructure for All Stakeholders Involved in Regenerative Medicine Products
Individual sample identification

Operational Function

Information tracing for cell collection/production/transportation/administration
Data form the entire process for regenerative medicine products

Medical institution

Logistics company

Diagnosis/cell collection

Transportation

Case

3

Pharmaceutical company/consigned manufacturer

Acceptance inspection, manufacturing, shipment

Medical institution

Pharmaceutical andother companies

Transportation

Administration

Post-marketingsurveillance

Enhance Lumada Solutions in Combination with Hitachi ABB Power Grids’ Operation
Management Solutions

The operation, analysis, and optimization of asset management
and field service management are important issues forcustomers in every industry. Hitachi ABB Power Grids has
supported inspections, testing, and maintenance, as well as
appropriate capital investments, to enable advanced asset
management and sustainable operations by providing DigitalEnterprise, a suite of operational management solutions forelectric power companies and the manufacturing and mining
industries. Hitachi ABB Power Grids collaborated with Hitachi
Vantara to increase system scalability and enable moreadvanced and broad ranging data analyses by combining
Digital Enterprise, which is already used by many customers,
with Lumada’s various technologies and solutions for dataapplication and optimization. In addition to asset and work

32

Logistics company

Hitachi Integrated Report 2021

management, Lumada solutions support customers’ corporate
management and operations. Hitachi will maximize the valueof these solutions by providing them not only to traditionalcustomers but also to customers and partners in Hitachi’s fivesectors, as well as those of Hitachi Astemo.

Hitachi ABB Power Grids’ Digital Enterprise joins Lumada ecosystem
ASSET PERFORMANCE
MANAGEMENTENTERPRISE ASSETMANAGEMENTWORKFORCE
MANAGEMENTLUMADA APM

LUMADA EAM

LUMADA FSM

Expanding the Social Innovation Business by Entrenching the Value of Co-creation
with the mindset of resolving social issues from a first-person
perspective.
We promote activities through in-house award systems
as a venue for entrenching the Hitachi Group Identity
and transforming employee mindsets. For example, the“Inspiration of the Year Global Award,” an award that started
in Japan in 2003 and became Hitachi’s global award systemfrom 2013, is presented each year to recognize activities that
embody the Hitachi Group Identity and contribute to realizing
a better society. Currently, Hitachi puts out calls for projects
in six regions worldwide where Hitachi undertakes business,and the Grand Prix award winners serve as ambassadors for
the Hitachi Brand in their respective regions, entrenching the
Hitachi Group Identity even more deeply within the company.
The “Make a Difference!” business idea contest, based on
the theme of the “first-person mindset,” has been held since2015 and strives to cultivate a corporate culture of winningin global competition. The Lumada Business Award, an inhouse award system for the Lumada business, strives toexpand the Social Innovation Business by entrenching thevalue of co-creation through a variety of activities, includinga recognition of projects that create new value for society,based on an understanding of the issues involved in creating
a better society for the future.

VisionValue Creation
Sustainability

Hitachi’s Mission is to “contribute to society through thedevelopment of superior, original technology and products.”
To fulfill Hitachi’s Mission, the Values reflect the Hitachi
Founding Spirit: Harmony, Sincerity, and Pioneering Spirit,
which have been steadily passed on. Based on the Mission
and Values, in 2013, we added the Vision, which is anexpression of what Hitachi aims to become in the future.
The Mission, Values and Vision are made to be shared in a
simple concept as the Hitachi Group Identity. Based on the
Hitachi Group Identity, we undertake corporate activities that
contribute to resolving diverse social issues in keeping withchanges in society, with a view toward the coming era. At
Hitachi, we believe that when every employee understands
and practices the Hitachi Group Identity this will tie into
resolving a variety of social issues and to the realization of abetter society.
Individual employees need to understand the value thatcan be achieved through co-creation. This understandingis important to providing the Social Innovation Business,driven by Lumada, throughout the world, and to expanding
the value brought about by social innovations to even morediverse customers and societies. For us to operate effectively
in the Social Innovation Business, it is essential that the
350,000 employees worldwide, including new employees
who joined the Hitachi Group through M&As, understandthe Hitachi Group Identity, and undertake their daily works

The Value of Digitization Provided by Hitachi
Governance

I’ve been working in the digital field for a long time and I was looking for a company that
could leverage digital to impact society in more meaningful ways.
And I found Hitachi.
When I met the Hitachi team members, I was particularly impressed by two things.
The first was Hitachi’s mission, “Contribute to society through the development of superior,original technologies and products.”
The second was the transformation of Hitachi. The challenge of transforming Hitachi
into a digital company, and to lead Hitachi Vantara, which is an important engine of thattransformation, appealed to me greatly. I knew I wanted to walk this journey with Hitachi.
The trust in the Hitachi brand is very strong, and the Lumada digital portfolio has tremendous
potential. I am confident we, together with our ecosystems of partners, can create muchvalue for society and our customers.

Gajen KandiahCEO, Hitachi Vantara LLC
ProfileData

Spent 15 years with Cognizant,a global IT services company.
Appointed CEO of Hitachi Vantara
on July 13, 2020.

33

Strategy 1

Expand Revenues by Accelerating the Social Innovation Business

Creation of Social and Environmental Value
Hitachi’s mission is to continue providing solutions to social and environmental
challenges to realize a sustainable society.
Climate change has become one of the most important issues, and many
countries have declared and set goals to both reduce CO2 emissions and achievesustainable economic growth. As a company that creates environmental value,
Hitachi will lead the realization of an environmentally friendly and sustainable
society and economic growth through both its own economic activities and theprovision of environment-related solutions.
Alistair Dormer, Executive Vice President andExecutive Officer, Chief Environmental Officer

Become a Climate Change Innovator
We are working to realize a “decarbonized society,” a “resource
efficient society,” and a “harmonized society with nature,” asdefined in our “Environmental Vision” and in our long-term
environmental goals, “Hitachi Environmental Innovation 2050.”
In particular, we are accelerating our efforts to decarbonize. In
addition to the goal of carbon neutrality in our business sites(factories and offices) by fiscal 2030, we have set a goal ofachieving carbon neutrality throughout the value chain by fiscal
2050. This goal includes CO2 emissions from our procurement
partners and from the use of Hitachi products and services by
our customers. By collaborating with customers, partners, andgovernments, Hitachi will lead the way toward a better world,with the aim of realizing a decarbonized society.
To achieve carbon neutrality in our business sites (factories

and offices) by fiscal 2030, we are accelerating the horizontal
deployment of best practices from Hitachi Group business sitesthat have achieved carbon neutrality. In addition, we are planning
to invest 84 billion yen over the next 10 years to accelerate ourinternal environmental initiatives. This will be used to install/
upgrade high-efficiency equipment, reduce production energy
through measures to improve production efficiency by utilizing
production technology and Lumada, which we have cultivatedover many years, and introduce renewable energy facilities.
We have also established the Hitachi Internal Carbon Pricing(HICP) system to provide incentives for capital investment that
contribute to CO2 reduction. In April 2021, we introduced anevaluation standard for executive compensation that takes
environmental value into account.

Efforts Toward Achieving a Decarbonized Society in Business Sites (Factories and Offices)

Reduction rate of total CO2 emissions (base: FY2010)

FY2020 (result)

FY2021 (target)

FY2030 (target)

FY2050 (target)

39%

20% or higher

100% (carbon neutral)

Maintain 100%

Hitachi’s Commitment to the Environment
Environmental Vision
Hitachi will resolve environmental issues and achieve both a higher quality of life and a sustainable society
through its Social Innovation Business in collaborative creation with its stakeholders.

Long-term Environmental Targets: Hitachi Environmental Innovation 2050

Fora Decarbonized SocietyFora Resource-Efficient Society

Achieve carbon neutrality by FY2050
throughout the value chain,

Build a society that uses water andother resources efficiently
with customers and society

reduce CO2 emissions
by 50% by FY2030(compared with FY2010)

Achieve carbon neutrality
by FY2030 at business sites(factories and offices)

Efficiency in use of water/resources
FY205050% improvement

For
a Harmonized Society with Nature

Impacts on natural capital

Minimized(compared with FY2010 in the Hitachi Group)

Environmental Action Plan
To achieve its Long-term Environmental Targets, Hitachi sets indicators and targets every three years.
The “Environmental Action Plan for 2021,” covering the targets for FY2019 through FY2021, is in progress.

34

Hitachi Integrated Report 2021

Realization of a Decarbonized Societyof energy usage. Solutions that support the introduction ofhigh-efficiency equipment and systems, support investment
decisions, and confirm the status of the shift to renewableenergy are important for corporate efforts, therefore Hitachi
developed a system that visualizes the usage of renewableenergy. Going forward, companies will be able to prove thatthe electricity they use comes from renewable energy sources
by utilizing this system. By developing new systems in addition
to the solutions Hitachi already provides, we will support the
decarbonization of our customers and procurement partners.

VisionValue Creation

With the world accelerating its efforts to decarbonize, Hitachi isidentifying the needs that are spreading globally and providing
solutions that meet those needs. Hitachi’s green technologies
and digital innovations help governments, customers, andpartners address environmental issues, particularly CO 2
emission reduction, and contribute to solving challenges in thearea of climate change.
To achieve decarbonization, it is necessary to lead not only thetransformation of social infrastructure and systems but also thedecarbonization of entire industries. For example, what will benecessary for companies to decarbonize is the visualization

Realization of a Decarbonized Society

Provide Solutions

IT

EnergyIndustry

Mobility

Smart Life

Automotive
Systems
Sustainability
GovernanceSource: Aibel
Aibel
Source:Energy• Support the societal shift
toward renewable energy• Provide systems andhigh-efficiency products thatrealize stable energy supply

Railway Systems•Develop eco-friendly railcars•Develop hybrid- andbattery-powered trains

Automotive Systems• Develop high-efficiency

electrification products andtechnologies to support the
expansion of xEVs

Industry• Provide DX solutions andenergy-saving industrial
equipment for manufacturing
and other industries

Data

Hitachi has been appointed as a “Principal Partner” to sponsor
COP26 (the 26th Conference of the Parties of the signatoriesof the United Nations Framework Convention on Climate
Change) to be held this November in Glasgow, U.K. This isa strong commitment to Hitachi’s role as a climate change
innovator and the realization of global efforts to decarbonize.
As countries accelerate their efforts and actions to achieve
the goals of the Paris Agreement and the United Nations
Framework Convention on Climate Change, we are proud toplay a part, together with the U.K. government, in this effort.

35

Strategy 2 Enhance Global Competitiveness

Hitachi’s R&D—Value-based Innovation
Over its history of more than 100 years, Hitachi has worked to develop cutting-edge technologies through its R&D activities tocreate innovation for the future, adhering to the company’s Corporate Mission to “contribute to society through the developmentof superior, original technology and products.” Since fiscal 2020, we have set the Research & Development Group’s basic
policy to “become a global innovation leader driving Society 5.0 and SDGs.” R&D resources are allocated to activities for theSocial Innovation Business and future growth, as well as to developing technologies that enhance Lumada’s digital innovation
platform, and to create value in three areas of business: the Environment, Resilience, and Security & Safety.
By leveraging the resources of Hitachi ABB Power Grids and Hitachi Astemo, as well as GlobalLogic, acquired in fiscal 2021, weare developing world-leading technology together with strong products and services that support value creation and contributeto the globalization of business and the growth of the Lumada business.

Enhance Quality of Life and increase corporate value for customers
Raise social
value

Raise environmental
value

Raise economic
value

Simultaneously improve the three values
for our customers through the six solutions
IT

EnergyIndustry

Mobility

Smart Life

Automotive
Systems

Products

Products

Products

Products

Products

Products

Societal/
Customer issues

Value & Solutions

Research & Development GroupCo-create
Accumulate

Cycle of value
creation

Develop

OT×IT×ProductsTechnology platforms/Know-how

36

Hitachi Integrated Report 2021

Wide-ranging
business issues

The Strength of Hitachi’s R&D
１ World-leading technology platforms and a

Collaboration with start-ups

Governance

We are also actively investing in and collaborating withstart-ups. The Corporate Venturing Office is actively
involved in global innovation ecosystems to exercise
open innovation and prepare for the next stageof growth, strengthening activities that pursue both
disruptive technologies and business models. Throughcollaborations with nine start-ups in which Hitachi has
invested (as of July 2021), including the health-techcompany SOPHiA GENETICS SA, which agreed to acollaboration in March 2021, we are accelerating thecreation of new value in fields such as life science, nextgeneration trust platforms, and computing.
Happiness Planet, Ltd., was established in July 2020
as Hitachi’s first inside-out initiative, with the objectiveof creating new industries in happiness and well-being
amid COVID-19. An app business is being developed
to create organizations where, using wearable devices
and smartphones to measure people’s sense of wellbeing and quantify the level of activity in an organization,
employees can take positive action toward achieving

Data

Social issues are becoming increasingly complex on a
global scale, as in the case of climate change, urbanization,and increasing senior populations. In this backdrop, cocreation with various partners is essential to quickly creatingsocial, environmental, and economic values. As part of its
Group-wide co-creation activities, in April 2019, Hitachi
launched Kyōsō-no-Mori, an R&D initiative to accelerate
the creation of innovations, from its research base at theCentral Research Laboratory in Japan. Since the launch,
we have sought new business opportunities throughevents such as ideathons and hackathons, sharing a vision

Through global industry-government-academia collaborations,
we will gain insights into future social issues, create a new
vision for achieving both solutions and economic growth, andstrengthen activities aimed at communicating this vision to
the world. In 2016, we established joint laboratories with the
University of Tokyo, Kyoto University, and Hokkaido University
to accelerate activities that pick up on changes in customers
and society. In 2021, forums were held to communicate ascenario created by the Hitachi-U Tokyo Laboratory to achievecarbon neutrality in 2050, and the Hitachi Kyoto University Lab
published BEYOND SMART LIFE, a book that summarizes
social issues in 2050 along with social value proposals toresolve those issues by universities and companies. Similarly,
outside of Japan, we are promoting activities to contribute tohuman-centric cities, for example, through a digital city project
being undertaken jointly with the prestigious Chulalongkorn
University in Thailand, and innovations in the medical fieldpromoted jointly with the city of Liverpool in Australia. Throughsuch joint activities, we are promoting innovations by backcasting from visions of the future.

Sustainability

2 Incorporating external knowledge throughco-creation

Communicating a vision to resolve challenges faced by society
through industry-government-academia collaboration
Value Creation

The strength of Hitachi’s R&D is derived from the integrationof the Hitachi Group’s technology platforms and expertise in
OT×IT×Products, technology development through co-creation
with customers and partners, and an established value creation
cycle that accumulates know-how from these processes. Whileadapting to changes in the business portfolio, the Hitachi Groupis enhancing technology platforms in future growth areas.
We integrated businesses in robotics system integration (SI),energy, and automotive parts into the Hitachi Group through theacquisition of JR Automation and the establishment of Hitachi
ABB Power Grids and Hitachi Astemo to create innovations
through synergies with Hitachi’s assets.
For example, by combining Hitachi ABB Power Grids’ worldleading grid automation, high-voltage direct current (HVDC),
and power transmission and distribution product technologies
with Hitachi’s technology platforms, including security, 5G,
and artificial intelligence (AI), the Lumada platform will beeffectively used to foster businesses that contribute to theenvironment, such as 100% renewable energy–based power
supply services, electric vehicles (EVs) and hydrogen stations,and data center solutions. In areas undertaken by Hitachi
Astemo, such as AD/ADAS, xEV, and advanced chassis,
we will leverage Hitachi’s R&D capabilities in areas such as
cybersecurity, AI, and over-the-air (OTA) software updates tobecome a global leader driving the era of CASE (connected,
automated, shared, and electric).
We are also reinforcing R&D in areas such as robotics
and electric motorization to further advance and innovatecore products such as high-speed railways, elevatorsand escalators, particle beam cancer treatment systems,
biochemical immuno-assay systems, inverters, and air
compressors, as well as to establish the world-leading
technologies that leverage our strengths in OT×IT×Products.
Moving forward to the next stage of growth, we will strengthencore Lumada technologies, including 5G and AI, as well as
accelerate R&D in quantum computers and regenerative
medicine with a medium- to long-term perspective.

aimed at resolving societal issues together with customers
and partners around the globe. To promote collaboration
between the co-creation centers located worldwide, theR&D network is being expanded to include the U.S. West
Coast, Beijing and Guangzhou in China, and London, U.K.
We are also preparing to open a base in West Sydney,
Australia, in 2023.

Visionvalue creation cycle

37

Strategy 2

Enhance Global Competitivenesscompany objectives. The new company adopts the“Dejima” approach advocated by the Japan Business
Federation (Keidanren), which combines the agility of aventure company with Hitachi’s advanced technologies
and sales channels to quickly create new businesses
capturing changes and needs in society.

3 The Lumada ecosystem value creation cycle
Hitachi is expanding the Lumada core and related
businesses worldwide leveraging the OT×IT×Products
technology platforms and expertise found in the Research& Development Group. One of its greatest strengths is its
ability to connect the technology platforms found in the
Hitachi Group with the “knowledge” acquired through open

innovation by collaborative creation to create value forcorporate entities across a wide range of industrial sectors
on a global scale.
Hitachi is using “NEXPERIENCE,” an original co-creation
methodology, to identify customer issues worldwide, create
solutions, and verify value. It is being enhanced to quantify
social, environmental, and economic values together withrisk assessment, and this advanced “NEXPERIENCE” isevolving into a methodology that enables collaboration
with multiple companies or regional communities to resolve
challenges in society. Solutions and know-how gained
through such activity or achievements by Hitachi and its
partners are accumulated in the Lumada Solution Hub,feeding into a cycle to create new value and transcending
the boundaries of companies and industries.

Strengthening R&D and Future Directions
Expanding R&D Investment
R&D expenditure in fiscal 2020 was 293.5 billion yen, which
represents 3.4% of revenues. R&D was conducted to contributeto raising social, environmental, and economic value, andraising the QoL of people. Core technologies, such as AI,
electric motorization, security/authentication platforms, 5G/
post 5G, robotics, and data science, were strengthened, andresearch in quantum computers and regenerative medicine
were conducted as disruptive technologies for the future.
R&D investment decreased temporarily in fiscal 2019 and2020, due in part to a reshuffling of the business portfolio, but
in fiscal 2021, investments will be increased targeting growthin the environment and digital technologies, while further
increasing R&D efficiency.
R&D investment is planned to increase up to 1.5 trillion yen over
the three years from fiscal 2022 to 2024. The following areas

identified by back-casting from society in 2050 are examples
of key target areas for Hitachi’s R&D activities: hydrogenpowered mobility and energy storage for decarbonizationand the evolution of a circular economy; water and carbon
cycle systems; mobility-related technologies supporting the
expansion of spaces for economic activities resulting from theevolution of electric motorization technologies; addressing thecell industry that has arisen from advances in biotechnology;
acceleration of technology development spurred by thedevelopment of quantum computers; the area of data trust
supporting the growth of the data distribution industry; andproduct innovations that support these fields. Hitachi willcontinue to provide value through the medium to long term bycollaborating with regional academia, research institutions, andstart-ups as well.

Increase R&D investment for growth in the Environment and Digital fields
R&D Investment

Hitachi Group R&D Portfolio
R&D expenditure/Revenues (%)

R&D expenditure (billion yen)(billion yen)

(%)

400

3.4

3.8

4.0

Corporate, others

8%
IT

19%

Listed subsidiaries

300

3.0

13%
Hitachi GroupR&D investment

200

2.0

Automotive
Systems

16%
100

1.0
Smart Life

0

0.0
2016

38

2017

Hitachi Integrated Report 2021

2018

2019

2020

2021

(FY)

20%

Energy¥293.5 billion

11%[FY2020]

Industry3%
Mobility10%

Value-based R&D
Hitachi promotes value-based R&D with a view toward the future, striving to enhance technology platforms and create
innovations that contribute to increasing value in three areas: the Environment, Resilience, and Security & Safety.
VisionFocusing on three areas—the Environment, Resilience, and Security & Safety—
and developing world-leading technologies
Environment
Business sector

EnergyMobility
Industry

Highly efficientelectrification
systems

IT
Smart Life

Resilience
Onlinegrid control
Digital industrial
solutions

Smart city

Security & Safety

Renewable energy
certification
Societal
infrastructure
maintenanceservices

Security
solutionsHydrogenenergyGreen
MaaS*
Digitalhealthcare
Value Creation

Value-based innovation

Technology platforms

Electrification
Security
Data science
Bio
AI
5G
…
Power grids

Enhance technology platforms

Environment
In the environment area, we will provide technologies that
contribute to the realization of a decarbonized society throughfundamental solutions that include renewable energy and theshift to electric motorization and hydrogen fuels.

*MaaS: Mobility as a Service

Prize for technologies related to high-speed railway rollingstock. We will continue our efforts to further increase theefficiency of electric drive systems. Hitachi has also produced
TED-MOS®, an original SiC power device that offers bothdurability and low power consumption characteristics. In
addition to maximizing drive efficiency in electric drive systems
and achieving carbon neutrality in fiscal 2030 in Hitachi’s
in-house production, we will support reduction in power
consumption and CO 2 emissions in a variety of societal
infrastructures, including electric vehicles, railways, powersystems, and data centers, contributing to the realization of acarbon-free society.

Governance

Activities in the field of energy
In the energy field, Hitachi is focusing on digitalization,
providing power system control and energy management
systems that accommodate the growing introductionof renewable energy to contribute to a decarbonizedsociety. We are conducting performance tests using
simulations to realize high-volume systems and stable
operations in renewable energy based on the world’s
first risk prediction type online grid control that combines
normal operation and emergency measures. In demandside energy management, we will increase the efficiencyof energy operations at offices and plants, using Lumada
to conduct integrated analyses of real-time forecastingand historical data in Hitachi ABB Power Grids’ e-mesh TM
EMS solution, which optimizes operational settingsfor distributed and renewable energy power sources.

Data

Initiatives in electrification
In the field of electric motorization, with growing demand toaccelerate the proliferation of electric vehicles to realize adecarbonized society, we developed a compact, high-output
800-V converter, which halves charging time while providing
comfortable acceleration, that was awarded with the Ichimura
Prize in Industry against Global Warming in March 2021.
This achievement was made possible by the developmentof a double-sided direct water-cooled power module withoutstanding insulated heat dissipation characteristics, offeringboth high-withstand voltage and cooling performance,
which enabled us to increase the inverter’s voltage evenwhile reducing its size and increasing output. In this way, we
increased the electric vehicle system voltage to 800 V frompast levels of around 400 V. For industrial applications, wedeveloped an amorphous motor based on IE5 standards
for energy conservation with a magnet that does not use
rare earth metals and incorporated it into a scroll-type
compressor, creating a highly efficient, quiet, and compact
industrial air compressor that contributes to reducing CO2
emissions in industrial devices. This product was awarded
the 52nd Ichimura Prize in Industry against Global Warming,
Achievement Award and the 66th Okochi Memorial Production

Sustainability

Control (2-wheeler)

39

Strategy 2

Enhance Global CompetitivenessIn January 2021, we developed a system to visualize
renewable energy usage for each facility and service.
Smart meters were added to various facilities at usersites, and blockchain technology was used to manage
the electric power source by facility unit. This will enabledigital certification of 100% renewable energy use by
product or service. We have already begun operation ofa Powered by Renewable Energy system verifying that
renewable energy accounts for 100% of the electric power
used in the “Kyōsō-tō” facility of Kyōsō-no-Mori. Moving
forward, we will contribute to realizing a decarbonizedsociety by expanding these operations to include all
aspects of the supply chain, including authentication ingreen procurement and the product usage and disposal
stages, in collaboration with partner companies in various
industries.

Initiatives for hydrogen energy
In hydrogen production and usage systems, we aredeveloping systems and material technologies that willcontribute to a sustainable hydrogen value chain. Regardinghydrogen systems, we are working with Denyo Kosan and
the National Institute of Advanced Industrial Science andTechnology (AIST) to increase the efficiency of hydrogen-light
oil mixed combustion power generation systems in Fukushima
prefecture. In relation to changing compositions of diverse
fuel types, we are applying AI control technology to increase
efficiency. In large-scale blue hydrogen production systems,
we have reduced water resource usage volumes by 30%
compared to the past using Hitachi’s original shift catalysts,
which are structurally controlled to the molecular level. We areconducting verification tests on the Osaki CoolGen Projectwith the New Energy and Industrial Technology Development
Organization (NEDO) to achieve high-volume, low-cost,sustainable hydrogen manufacturing.

Resilience
Hitachi is also promoting R&D that contributes to improving
customers’ business resilience in response to changes
in society and the environment, as well as the resilienceof societal infrastructures that use digital technologies tosupport rapid recovery from natural disasters, pandemics,
and cyberattacks.
In 2020, Hitachi’s Omika Works became the first factory
operated by a Japanese company to be listed in the World
Economic Forum Lighthouse as a most advanced factory.
To realize value chain optimization that flexibly adapts tothe business environment, the high-efficiency production
model and other systems from Omika Works are being
deployed through co-creation in automotive, chemical, andother industries. Our goal for the future is to provide Lumada
solutions that embody an N-fold expansion of industrial
digital solutions that achieve overall optimization, such asplanning optimization services that digitalize tacit knowledge
and increase the visibility of frontline operations.

40

Hitachi Integrated Report 2021

In the security field, we are promoting R&D aimed at
improving resilience for human activities both in the cyberand physical worlds. In October 2020, using Hitachi’s
original Public Biometric Infrastructure (PBI) technologies,
we began providing the “Biometric Integrated Infrastructure
Service,” a cloud service for secure biometric authentication.
By combining PBI with settlement functions or accessmanagement at commercial facilities, it becomes possible
to offer hands-free personal authentication. Using PBI,
biometric information such as finger vein, face, or iris canbe encrypted and registered in the cloud in a format thatcannot be decrypted, enabling safe personal authenticationand cashless settlements. This system was awarded the2020 (63rd) Best 10 New Products Award (Masuda Prize)
sponsored by the Nikkan Kogyo Shimbun. Increased
security is provided by using AI image analysis of people
and luggage to improve the visibility of people flow andmovement in public areas such as train stations andairports. Solutions such as “high-speed human detection
and tracking solutions” are being developed as COVID-19
infection prevention measures with due consideration toindividual privacy.

Security & Safety
Hitachi strives to achieve a safe and secure society that
increases quality of life through advanced R&D basedon insights into the new challenges in the future brought
about by climate change, COVID-19, the aging society, anddigital economies.

Initiatives in medical/pharmacy for Security & Safety
In the medical and pharmacy fields, synergies are beingexerted with Hitachi High-Tech, now a fully owned subsidiary.
By applying image processing technologies that use
machine learning to biochemical immune-assay systems inwhich Hitachi holds the top share, we have increased theaccuracy and processing capacity of specimen analysis
to accommodate COVID-19 antigen testing and antibody
measurement. In diagnostic and treatment systems, theHospital of University of Navarra in Spain received deliveryof Europe’s first particle beam cancer treatment system,
equipped with a spot scanning technology that projects
a particle beam adjusted to the shape of the cancer anda moving tissue tracking system that accurately projects
the proton beam onto tumors that change position due
to respiration or other bodily movement. Treatments using
this system began in April 2020. In the field of regenerative
medicine, Kyoto University conducted the world’s firstphysician-initiated clinical trials for Parkinson’s diseaseusing iPS cells. Sumitomo Dainippon Pharma produced thetreatment cells for these trials using Hitachi’s automatedcell culturing system. The first clinical application of acommercial cell production system based on industryacademia collaborations represents an important first step
toward the proliferation of regenerative medicine.

Further Evolution of Lumada
Regarding beyond-5G/6G communications technologies,
5G testing environments have been established at our
North American Silicon Valley site and Kyōsō-no-Mori toaccelerate the development of 5G solutions. We are also
accelerating R&D targeting the creation of secure, real-time
control systems in 5G environments, including telepresence
remote work support solutions that utilize AR glasses.
In the field of quantum computers, Hitachi is promoting R&D
for silicon quantum computers with outstanding scalability
through industry-government-academia collaboration. In
2020, we successfully created a prototype of the basic
structure for a two-dimensional electron dot array using
a silicon semiconductor and achieved the large-scale
integration that is essential for industrial applications. We willcontinue to accelerate R&D aimed at the early application ofquantum computers through collaborations in this industrygovernment-academia ecosystem.

VisionValue Creation

Hitachi is strengthening R&D in the fields of AI, beyond5G/6G wireless communications, and quantum computers,as Lumada’s core technologies, to contribute to the further
evolution of Lumada and to growth in the medium and longterm.
In February 2021, Hitachi established “principles guiding
the ethical use of AI” to promote the development ofAI technologies that support a human centric society.
Checklists in line with these principles are already being
applied to actual projects at the Lumada Data Science
Lab. To further enhance AI technology capabilities, we are
actively participating in international AI competitions andhave received top class evaluations in the fields of image
and language processing. The technologies cultivatedthrough such activities will also be applied to Lumadarelated solutions, including high-speed human detection
and tracking.

Initiatives in Intellectual Properties (IPs)
Our activities, which are rooted in Hitachi’s “IP for society”
concept, work to promote the use of IP to maintain andevolve social norms. We are aggressively promoting theopenness of intellectual property in certain highly publicdomains, contributing to solutions for global social issues.
In the case of environmental issues, in fiscal 2021, we newly
established the Environmental IP Enhancement Center within
the Intellectual Property Division. With that, we have begun
considering policies (e.g., solution creation contributing toenvironmental value realization, construction of IP libraries)
aimed at improving environmental value from the perspectiveof intellectual property. Hitachi has registered the technology
for the desalination of seawater to resolve water-related
issues as well as the technology for a type of ink that detects
changes in temperature and then changes color to help
tackle food waste issues, with WIPO GREEN as a platform forenvironmental technology operated by the World Intellectual
Property Organization (WIPO). With regard to contributions
to resolve social issues, Hitachi has announced to open its IP
concerning the Mother & Child Health Survey in cooperation
with Hokkaido University, the City of Iwamizawa, and Morinaga
Milk Industry Co., Ltd. Looking forward, we will continue toconsider ways we can contribute to the resolution of social
issues utilizing our IP.
In fiscal 2020, Hitachi ABB Power Grids and Hitachi Astemo
newly joined the Hitachi Group, dramatically expanding the IP
portfolio as it relates to energy platforms, xEV, AD/ADAS, andadvanced chassis. Moving forward, we will further promote theenhancement of IP globally and in the solutions field.

Sustainability
GovernanceData

To achieve SDGs and business growth, Hitachi has formulated
and implemented intellectual property (IP) strategies thatconsists of three pillars: “IP strategy for competitiveness,” “IP
strategy for collaboration” in the product and digital solutions
fields, and “IP for society,” in which we strive to resolve social
issues through the Social Innovation Business.
The IP strategy for competitiveness is centered on acquiringand utilizing patents and other IP rights. “IP Master Plans”
customized for the nature of each business are formulated andimplemented to enforce competitiveness.
In our IP strategy for collaboration, as opportunities for cocreation with our customers and partners increase throughthe Lumada business, we have expanded the scope of our
IP activities to include not only copyrights, patents, andtrade secrets but also information assets such as data andinformation, and we are using IP to promote partnerships
and build ecosystems. For example, in the case of IP derived
from a co-creation process using AI, it is important to beflexible when entering contracts with customers regarding thehandling of those IP assets. Hitachi’s IP division is involvedin 200–300 co-creation contracts each year and supports
the building of win-win relationships between Hitachi and its
customers. It also supports the enhancement and expansion of
the digital solutions business, promoting activities that ensuresmooth responses even in the case of new regulations or
new technologies such as AI, robotics, and automatic driving.
These activities resulted in Hitachi, Ltd., being awarded theIntellectual Property Achievement Award within the Minister of
Economy, Trade, and Industry Awards in Japan for the first timein June 2020.

41

Strategy 2

Enhance Global CompetitivenessGlobal Human Capital that Provides Value to Society through the Social
Innovation Business
Hitachi has formulated the 2021 Human Resources Strategy with the aim of having each and every employee around the worldcontribute to the creation of safe and vibrant workplaces while respecting diverse value systems, and having its employees feelpride and happiness working for Hitachi with opportunities for growth through work. Hitachi is stepping up efforts to secure andtrain global human resources by evolving its training, evaluation, compensation and hiring systems based on a core strategy ofeffecting changes in human capital management in a bid to spur innovation and create new value in the global and digital era.
We are also striving to cultivate a common Hitachi Group Identity in all employees worldwide, along with the values of Harmony,
Sincerity, and Pioneering Spirit that comprise the Hitachi Founding Spirit, so that we can work as One Hitachi across countries,
regions, and divisions to contribute to society.

Global Human Capital Management Strategy
It is none other than the 350,000 employees of the HitachiGroup who bring about innovations and support thecompany’s growth. In order to become a world leader in theSocial Innovation Business, Hitachi has implemented a global
human capital management strategy to ensure that its diverse
workforce can work with a high level of engagement acrosscountries, regions and companies, and that individuals andorganizations can demonstrate their full potential. At the sametime, to further grow the Social Innovation Business on a global
scale, it is important to secure, assign and train optimum
human resources, regardless of nationality, gender, age orother attributes, so that global-scale projects can be executed
as One Hitachi. If we are to propose innovative solutions tocustomers and society, it is essential that each and every
employee sees social issues as his or her own, and that these
employees have the personal drive to bring about change.
As such, cultivating a corporate culture that supports thisapproach is a key issue in talent management.

In 2010, Hitachi made a major change in its management
directions, aiming for global growth through the Social
Innovation Business. Since then, we have invested efforts intore-examining and executing talent strategies to support thatgrowth. As of the end of March 2021, the number of Hitachi
employees working overseas reached 190,000, and as thescale of overseas business increased, so too did the ratio ofoverseas business as part of Hitachi overall. With a view toward
these changes in the company, in our HR strategies, we havepromoted global human resource management that uses
unified performance evaluation criteria and offers a common
leadership development program for employees around theworld.
By building workplaces for diverse workforce with diverse
values while responding to changes in the company and insociety, and by putting in place frameworks that enable eachindividual employee to demonstrate their value to the fullest, weare accelerating the creation of value on a global scale throughthe Social Innovation Business.

Diversity & Inclusion
Hitachi is keen to create companies where employees withdiverse cultural backgrounds, experiences and ways ofthinking can work together. The “Statement on Diversity andInclusion” was created to demonstrate our commitment.
Diversity is the wellspring of our innovation and our growthengine. Hitachi regards personal differences such as gender,
nationality, race, religion, background, age, abled or disabled
status, and sexual orientation as well as other differences, as
facets of people’s individuality. By respecting our employees’
individualities and positioning them as an advantage, Hitachi
frames its diversity and inclusion as conducive to both theindividual’s and the company’s sustainable growth. With adiverse workforce, strong teamwork and broad experience inthe global market, we will meet our customers’ needs.

42

Hitachi Integrated Report 2021

Lorena Dellagiovanna

Vice President and Executive
Officer, CDIO
After joining Hitachi Europe in 1988, wasmainly active at Hitachi bases in Europe.
Appointed CDIO in 2020, and serves asVice President and Executive Officer,
CDIO from 2021.

at the Sustainability Strategy Meeting (the Diversity andInclusion session), where members discuss sustainability froma management perspective. We have also established a HitachiGroup Diversity and Inclusion Council, which meets once eachyear to discuss issues related to diversity. The Sustainability
Strategy Meeting focuses on creating policies along withthe management team, defining priorities on initiatives andinvestments, and sharing learnings from various activities, while
the main goal of the Diversity and Inclusion Council is to ensurealignment with global strategies and discuss specific actions
in partnership with HR Divisions at Hitachi Group companies.
In addition, Group companies are also advancing diversity
management in accordance with their respective challenges
and circumstances at the global level. With Group companies
around the world, we are working together to accelerate
implementation.

VisionValue Creation

To further accelerate activities at the global level, we haveincorporated “Diversity and Inclusion” into our businessstrategies. These initiatives are led by Lorena Dellagiovanna,
Hitachi’s first female Vice President and Executive Officer, who
serves in the capacity of Chief Diversity and Inclusion Officer(CDIO). We believe it is important to recognize diverse values
and share opinions if we are to provide optimal solutions
based on an accurate understanding of the complex issues
confronting society and our customers. With the goal of having
members with different values on the same team sharing thesame goals, we are working not only to secure and train adiverse workforce but also to create a workplace where eachof these individuals can work to the best of their abilities, andbring great value to business and society.
To further progress diversity and inclusion throughout the
Hitachi Group as a whole, we have included D&I as a theme

Target and Actions for Diversity & Inclusion
to the executive officer structure: Lorena Dellagiovanna as Vice
President and Executive Officer, Claudio Facchin as SeniorVice President and Executive Officer and Wolfgang Mueller as
Corporate Officer. There are now eight non-Japanese among
Hitachi’s executive level, once again reaching our goal of 10%.
To further accelerate Diversity & Inclusion, in April 2021, we
set a new target of 30% for the ratio of both women and
non-Japanese among top executives (Executive Officers
and Corporate Officers) to be reached by fiscal 2030*1, witha milestone of 15% to be reached by fiscal 2024. We havealso set targets for diversity and gender (female managers)
at the decision-making level, for business units, corporate
functions, and Group companies, respectively. By promoting
Diversity & Inclusion, we will continue to reflect diverse, global
perspectives in management and strengthen management
supervision functions.
Diversity and inclusion at Hitachi matters, not just with respect
to women and non-Japanese nationals, but embracing all
aspects of diversity as stated in our “Statement on Diversity
and Inclusion.” For example, to promote generational diversity,
the CDIO has participated in the Talent Committee and ismentoring emerging talent in addition to ad hoc programs,
and the Hitachi Group has joined “The Valuable 500,” a global
movement for disability inclusion. We will continuously work tocreate an inclusive environment where all employees can fulfill
their potential.

Sustainability
GovernanceData

As part of activities aimed at achieving these goals, in fiscal
2020, we analyzed current conditions and conducted a gap
analysis using external evaluation data, and also conductedinterviews with business division staff. Based on the results,
in April 2021, we created a Diversity & Inclusion strategy thatlays out medium- and long-term goals. This strategy includes
Diversity & Inclusion goals set for individual business divisions,
corporate divisions, and Group companies. When setting thesegoals, we conducted one-on-one meetings with the CDIO anddivision managers to discuss how Diversity & Inclusion relate toissues in Hitachi’s various business divisions, which undertake
business in diverse markets and industries.
In the past, Hitachi set numerical targets (KPIs) of 10% for
the ratio of both women and non-Japanese among top
executives (Executive Officers and Corporate Officers), andthe appointment of 800 women to management positions, topromote participation by people with different backgrounds
in management decision-making, and to place more female
employees in leadership roles.
In terms of empowering female employees, we have put inplace structures that enable participation by more women in
management decision-making. For example, we appointed
one female executive level corporate officer in April 2015,
and Lorena Dellagiovanna was appointed Vice President andExecutive Officer in April 2021, becoming Hitachi’s first female
executive officer. As a result, in April 2021, there were sevenfemale executives, meeting our target of 10%. Furthermore, in
October 2020, we reached our goal of appointing 800 female
managers by fiscal 2020, doubling the number comparedto fiscal 2012, forming a substantial population of female
candidates for executive leadership in the future.
In terms of promoting active participation by non-Japanese,
six out of 13 current board directors are non-Japanese, andApril 2021 saw the appointment of three new non-Japanese*1 FY2030 includes personnel changes effective April 1, 2031

43Strategy 2

Enhance Global Competitiveness

Number and Ratio of Female Managers*1

Ratios for Female and Non-Japanese Executives andCorporate Officers (Hitachi, Ltd.)*1

Female managers, Hitachi, Ltd.*2 (left scale)

Percentage of total, Hitachi, Ltd.*2

Number of female executives

Ratio of female executives

Female managers, Hitachi Group*3*4*5 (right scale)

Percentage of total, Hitachi, Ltd.*3*4*5

Number of non-Japanese executives

Ratio of non-Japanese executives

9.5%(persons)

1,000

8.9%
8.3%

3,325

800

11.6%

6.3%

8.8%

5.5%

2

2

3.7%
2.4%

9

7.1%

6

4

3

1,000

6

5

6.4%

4
2,000

200

8.6%

5

3,000

4.8%
4.2%

12

10.1%
6

6.5%

635

8

7

4,000

768

700

509 2,562
4.1%

(%)

4,302

577

400

8
7

3,975

6.7%

600

(persons)

5,000

4,641

7.3%

800

(persons)

5.0%

3

2
2.6%

73

0

0

0
2000

2016

2017

2018

2019

2020 2020
October*1 The decline at Hitachi, Ltd. from October 2020 to the end of that fiscal year wasdue mainly to the transfer of businesses*2 Since fiscal 2017, “Female managers” has included managerial employees
dispatched from Hitachi, Ltd. to other companies and those accepted from othercompanies by Hitachi, Ltd. Earlier figures include regular managerial employees
dispatched to other companies but exclude those accepted from other companies*3 Hitachi Group figures exclude approximately 40,000 manufacturing workers*4 The scope of reporting shifted from full-time, regular female managers, excluding
those dispatched to non-Group companies, to all female managers including
those dispatched from Hitachi, Ltd. to other companies and those accepted fromother companies; figures for previous years have been adjusted to match this newscope*5 Rising numbers of female managers in part reflect improved coverage of ourhuman capital databases

0June 2017(FY)

June 2018

June 2019

June 2020

June 2021*1 Disclosed since 2017, the year we established as a goal for achieving diversity
among executive officers, corporate officers, and fellows

Framework for Global Human Capital Management
The development of the Social Innovation Business requires
us to actively investigate social and customer issues and thencooperate with customers to create all new solutions. With

the goal of creating innovation and new value in the global
and digital era, Hitachi is focused on securing and fostering
a diverse workforce and the organizations capable of driving

Initiatives to Achieve Growth for Individuals and Society
through the Shared Global Foundation for Group-wide Human Capital Management
FY2012FY2013

FY2014FY2015 〜

Global Human
Capital Database

Hitachi Global Grade(HGG)

Global Performance
Management (GPM)

Global education platform(Hitachi University)

Database creation for approx. 250,000
people’s human capital information

Grading of 50,000 positions worldwide
from manager level and above

Implementation for 112,000 people(with phased expansion of implementation)

Selection/development of
global leaders

Global Employee Survey(Hitachi Insights)

Amended compensation for manager
level and above (Japan [Hitachi, Ltd.])

Approx. 682 participant
companies worldwide
Approx. 177,940 respondents(Response rate: 86%)
Provided in 11 languages

Selection/development ofaround 500 people
with top-level global talent

Phased expansion of linkage
between HGG and GPM
Excluding seniority-based portion
for manager level and above
Toward job-based compensation

Introduced new learning system to
300,000 people

Global integrated platform forhuman capital management
FY2015 Test implementation
FY2017 Implementation in Japan
FY2020 153,000 people
FY2021 224,000 people

Phased implementation of human capital management platform shared globally by the entire Group44

Hitachi Integrated Report 2021

and career ambitions of individual employees. This platform
is utilized in optimally allocating personnel around the world,
discovering and grooming candidates for future leadershipand management positions, and communications between
managers and employees.
Employees clarify their ideal careers, and companies identify
the necessary work skills and experiences. We are shifting
toward job-based human resource management, whereby thebest people are optimally assigned to positions in accordancewith each employee’s abilities and ambitions, without regard tofactors such as age. More specifically, we visualize job functions
by preparing job descriptions that describe the job content aswell as desired skills and experiences. Several managers
gather to discuss the strengths and career goals of theirsubordinates and conduct talent review sessions to explore
options for job training and assignments. By introducing thisframework, Hitachi is accelerating the switchover to the jobbased management of human resources that clarifies the workand roles of each employee as well as performance expected
and achieved.

VisionValue Creation

sustainable growth. Starting with a common human resources
system for the global group companies, Hitachi aims to assign
the right personnel to the right positions, allocating the best
human resources to key positions on a global basis. To achieve
this goal, Hitachi clarifies the roles and responsibilities of eachposition, as well as reporting lines, to find a common approachto human capital management globally. With this sharedunderstanding, we endeavor to nurture an organizational
culture that respects diversity while centering on individual
capabilities and build a global business structure based on thisculture.
Hitachi has introduced measures, including the Hitachi Global
Grade and Global Performance Management systems, tocreate a human capital management platform shared globally
across the entire group.
Hitachi launched the full-scale operation of the humancapital management integrated platform in 2015, centralizing
processes and measures enacted to date, with a broad range
of information about its human resources, including the skills

Building Workplaces that Offer Job Satisfaction
survey was first conducted in 2013, and scores continue toincrease in all categories. The overall positive evaluation rate
was 64% (up 3% from last year, and up 10% vs. 2013), andthe engagement index was 62% (up 2% from last year, and up
9% vs. 2013).
In addition, as part of efforts to build more comfortableworkplaces, Hitachi has evolved the concept of work life
balance, which strives for harmony between work and private
life, promoting “work life management,” in which each individual
employee improves the quality of his or her own work andprivate life.
In 2020, COVID-19 had a huge impact on the work-stylesof employees throughout the world. Hitachi will continue topromote working from home, along with other new and diverse
work-styles, so that the diverse workforce can demonstrate
their full potential in their respective environments, and also
to enable recovery and continuity of corporate activities evenafter a natural disaster or other disruptive event. We are making
improvements to remote working environments and security
services that make these work-styles possible, and we will
support diverse work-styles by putting in place IT environmentsthat allow employees to work as comfortably and efficiently as
they would in an office environment.

Sustainability
Governance
Data

The source of Hitachi’s growth is found in building comfortableworkplaces that offer job satisfaction, where Hitachi’s diverse
employees can work with enthusiasm and demonstrate strong
performance.
Hitachi uses the term “employee engagement” to refer to
employees’ understanding of the company’s strategies andpolicies, as well as their job satisfaction and desire to takeactions on their own initiative to bring about results. We conduct
an annual global employee survey called Hitachi Insights as away of measuring employee engagement. Top executives andmanagers in each workplace share the results of this survey
with members of their own organizations and incorporate
those results into concrete improvement measures, which inturn ties into a PDCA cycle for building workplaces that offer
job satisfaction. Specifically, factors such as understanding ofmanagement policies, the status of work-style reforms, labor
environments, learning opportunities and motivation for growth
are presented in a clear numerical form. In this way, theseelements can be prioritized and applied in the context of reexamining work-styles and improving productivity in individual
workplaces, as well as HR initiatives throughout Hitachi as awhole. This annual survey also enables evaluations and reviewsof specific activities, and can be tied directly into operational
and workplace improvements and the measurement of impact.
In 2020, we conducted the eighth annual survey, targeting
approximately 200,000 employees worldwide, in 14 languages.
The survey participation rate was 90%, the highest since theFor data on human resources, please see page 147 of the Hitachi Sustainability Report 2021.
https://www.hitachi.com/sustainability/download/index.html

45Strategy 3 Reinforce Management System to Improve Profitability

Hitachi is implementing measures to further increase profitability and strengthen the management base.
In terms of financial capital strategies, we are accelerating activities in four key areas: 1) further improve profitability throughstringent ROIC management, 2) improve capital efficiency by increasing the business asset turnover rate, 3) reduce the WACC
using leverage within the scope of appropriate financial discipline, and 4) increase total shareholder return (TSR) through theexecution of TSR measures that take into account not only dividends but also share buybacks.

Progress of ROIC Management
Promoting ROIC Management with a Higher
Awareness of Capital Costs
In its 2021 Mid-term Management Plan, Hitachi implemented
growth investments of approximately 2.9 trillion yen focusing
mainly on the IT, Energy, and Industry sectors, with the goalof becoming a global leader in the Social Innovation Business.
To ensure the efficient execution of these large-scale growthinvestments, we introduced return on invested capital (ROIC)*1
as a corporate management index in fiscal 2019. ROIC indicates
how much profit (after-tax business profit) can be generated on

capital invested in a business. To improve ROIC, returns must
exceed the weighted average cost of capital (WACC), which isthe financing cost of invested capital. Since introducing ROIC,
understanding of this approach has penetrated to the front
lines, and we are promoting management with an awarenessof profitability as well as capital costs throughout the Group asa whole. Our goal is to increase ROIC from 6.4% at the end of
fiscal 2020 to more than 10% at the end of fiscal 2022.

Improve profitability
Example of major action items(to be further broken down and assigned to each division)

ROIC increase drivers

Expand orders,determine appropriate orders received

Expand profitablerevenues

Optimize customer portfolio
Expand overseas revenues
Expand Lumada revenues

Increase adjusted
operating income ratio

Reduce materials cost, outsourcing expenses
Improve production efficiency
Improve business efficiency

Reduce costs

Implement structural reforms
Strengthen project management

Increase after-tax
business profit

Reduce loss costs
Withdraw/replace unprofitable business

Reduce tax expenses

Implement appropriate tax management

Increase equity inearnings of affiliated companies

Realize joint venture alliance synergies

Improve asset efficiency (Improved invested capital ≈ business asset efficiency)
Example of major action items(to be further broken down and assigned to each division)

ROIC increase drivers

Increase ROIC

Early collection of trade receivables

Increase working
capital turnoverCCC*2
improvement

Reduce inventories
Trade payables: Set appropriate payment dates
Acquire advance payments

Improve businessasset efficiency(Increase asset
turnover ratio)

Implement pre-investment checks and post-investment monitoring

Increase fixed
asset turnover ratio

Review held real estate, sell idle real estate assets
Manage goodwill
Review cross-shareholdings and equity-method investments

Reduce cash on hand andinterest-bearing debt

Improve accuracy of cash flow forecasts
Expand pooling*1 ROIC = (NOPAT + Share of profits (losses) of investments accounted for using the equity method) / “Invested Capital” x 100
NOPAT (Net Operating Profit after Tax) = Adjusted Operating Income x (1 – Effective income tax rate), Invested Capital = Interest-bearing debt + Total equity*2 CCC (Cash Conversion Cycle)

46

Hitachi Integrated Report 2021

Financial and Capital Strategy
Strengthening Cash Management

Cash flows from operating activities

Cash flows from investing activities

Free cash flows

Cash flows margin from operating activities

629.5

291.6

(billion yen)
9.1%

7.8%
727.1

6.9%

Core free cash flows*

Vision6.4%
610.0 447.1

283.5 252.8

100.2

136.0

793.1

6.4%
560.9
135.4

419.8

334.2

35.0

(162.8)(337.9)(474.3)

FY2016(525.8)FY2017FY2018FY2019(458.8)FY2020*“Core free cash flows” are cash flows presented as free cash flows excluding cash flows from
M&A and asset sales, etc.

Value Creation

To keep pace with the rapid changes in society
and the economy, Hitachi places an emphasison achieving stable cash flow by 1) ensuring
adequate liquidity on hand; 2) enhancing thegeneration of operating cash flow by securingbusiness opportunities, reducing working
capital such as inventories, and implementing
structural reforms; and 3) reviewing priorities forcapital expenditures and other investments andloans, while improving investment cash flow by
selling off assets.

Cash Flows

Financing and Capital Costs
Financing is carried out through the means deemed most appropriate (e.g., cash on hand, borrowings, and gains from the saleof assets), based on a variety of conditions, including the timing and amounts required by the business. When financing throughborrowing and other forms of debt, our financial discipline is to maintain a D/E ratio of less than 0.5 times and an interest-bearing debt/
EBITDA ratio of less than 2.0 times. Regarding the cost of capital (hurdle rate) used for individual investment decisions, calculations
and judgments are made on a case-by-case basis considering interest rates, country risks, and expected returns in the country where
the investment will be made.

Sustainability

Capital Allocation
Basic policies in the 2021 Mid-term Management Plan
• Secure capital by increasing operating cash flow•	Implement growth investments to strengthen products andservices and secure human resources as required to provide
solutions and expand the digital solutions business• Ensure stable growth in dividends•	Strengthen returns to shareholders by steadily increasing
dividends and considering share buybacks based on businessgrowth, asset sell-offs, and the status of stock prices•	Over the three years from fiscal 2022 to fiscal 2024, increase
R&D investments to 1.5 trillion yen and strengthen R&D
targeting future growth

Basic Policy on Shareholder Returns

Debt/
Asset sale

Asset sale

2.0

Growthinvestment

1/3

CAPEX

1/3

trillion yen
—

4.0

2.5

trillionyentrillion yen

4.5

trillionyen

Growthinvestment

OperatingCash Flows

2.5

CAPEX,
etc.

OperatingCash Flows

Debt
repayment

trillion yen

Shareholder
returns(R&D: 1.2 trillion yen)

1/3

Shareholder
returns(R&D: 1.5 trillion yen)Three-year cumulative total

are undertaken within a scope that is consistent with dividend
policies to enable the execution of agile capital policies, including
studies and implementation of buybacks with a view toward stock
price conditions and the need for growth investments based on
capital and business plans, as well as business reorganizations
aimed at maximizing shareholder value in the future.
Moving forward, we will continue working to steadily increase
dividends, based on our policy of strengthening returns toshareholders. We will also explore share buybacks to reliably
share the benefits of business growth with shareholders.

Data

Returning profits to shareholders based on medium- and longterm business plans and achieving growth in total shareholder
return (TSR) through the formation of appropriate stock prices
are positioned as important management themes for Hitachi.
Our policy is to provide stable dividend growth while securing theinternal capital required to execute the R&D and capital investmentsthat are essential to maintaining market competitiveness andincreasing profits. Under this policy, we make decisions based on
overall consideration of performance trends, financial conditions,and dividend payout ratios, among other factors. Share buybacks

Three-year cumulative totals,
at the time the plan was drawn up—•	Continue growth investments in the Environment, Resilience,and Security & Safety

Image of future
capital allocation

GovernanceFuture capital allocation policies•	Secure operating cash flow through business growth andcontinue to secure capital by selling off assets

2021 Mid-termManagement Plan

47

Strategy 3

Reinforce Management System to Improve Profitability

Growth Investments Made to Date
In the 2021 Mid-term Management Plan, Hitachi expanded the Lumada business by positioning the IT, Energy, and Industry sectors
as key investment fields for growth. Following is a list of the main M&A projects undertaken to strengthen business.
SectorIT

EnergyIndustry

Mobility

Smart Life

Company [Acquisition price*1]

Acquisition datePurpose

FusioTech

April 2020

Accelerate the global rollout of the Lumada business through the acquisition of
the AI and data analytics SaaS business in Asia

Hitachi Channel Solutions(became a wholly owned subsidiary)*2

March 2021

Accelerate management as one with Hitachi, Ltd., and increase the speed ofmanagement and decision-making

GlobalLogic [Approx. 1 trillion yen]

July 2021

Leverage GlobalLogicʼs global customer base and digital engineering
capabilities to accelerate the global rollout of the Lumada business

ABBʼs power grids business [Approx. 1 trillion yen]

July 2020

Acquire the world’s top-level power grids business as well as a global
customer base, human resources, back-office functions and other operational
infrastructure to accelerate the transformation of Hitachi into a truly global
company.

KEC

April 2019

Increase Hitachiʼs competitiveness in the robotics solutions business

JR Automation [Approx. 150.0 billion yen]

December 2019

Entry into the North American robotic systems integration business andacquisition of its customer base

Yungtay Engineering (partial share acquisition)

May 2019 andOctober 2020

Expand global operations and improve profitability in the elevators & escalators
business

Chassis Brakes International

October 2019

This move strengthens the chassis and safety systems business, core
operations in the automotive systems business

Hitachi High-Tech (became a wholly owned subsidiary)[Approx. 530.0 billion yen]

May 2020

Leverage measurement and analysis technologies to accelerate growth inLumada and the Social Innovation Business

Established Hitachi Astemo through an integration with
Keihin, Showa, and Nissin Kogyo, affiliates of Honda
Motor

January 2021

Strengthen the development and provision of globally competitive solutions in
the CASE field in the automotive systems business*1 Amounts are indicated only for acquisitions with prices higher than 100 billion yen*2 On July 1, 2021, Hitachi-Omron Terminal Solutions changed its name to Hitachi Channel Solutions

Strengthening the Management Base through the Standardization of Global Operations
Hitachi is strengthening the Company-wide management base through a digital transformation that leverages the platforms of Hitachi
ABB Power Grids, which are based on global operational know-how. We will further strengthen synergies while reducing costs, byfostering shared ERP, introducing global shared services, and building Group-wide CRM. Construction and studies are ongoing
through fiscal 2021, with plans to gradually introduce these platforms from fiscal 2022 onward. In this way, we expect to achieve acumulative cost-reduction impact of 170 billion yen by fiscal 2025.

Standardization of Enterprise Resource
Planning (ERP) Systems
Hitachi is consolidating and standardizing the ERP systemapplications that have been used separately at individual
Hitachi Group companies. In the context of these activities,
Group companies will adopt ERP templates that are basedon Hitachi ABB Power Grids’ global operations. By increasing
the efficiency of application operations, we will shift resources,
including both human resources and assets, to businesscompetition fields, and enable a rapid response to businessreorganizations. Companies targeted for early introduction arescheduled to begin operations based on these ERP templates
in 2022, with integration and consolidation according toindustry type to be completed by 2027.

Expanding Shared Services
Hitachi is expanding services that allow Company-wide
management division operations to be used throughout theGroup as Global Business Services (GBS). We are building
global operation platforms and applying this GBS approach to
optimize the operation of shared IT assets, as well as the global
uniformity and operating efficiency of services and operations.
Moving forward, we will use Hitachi ABB Power Grids’ core48

Hitachi Integrated Report 2021

business systems and infrastructure service platforms topromote standardization within the Group to achieve an IT
operation platform that supports global business activities andto provide this platform as a global shared service.

Building Customer Relation Management (CRM)
Systems
Hitachi will accelerate the creation of value for customers
by centralizing information on the Hitachi Group’s global
customers in multiple industries through shared Companywide CRM. Up to now, individual business units and Group
companies managed customer information using their own
respective systems, approaching customers from a front-officeperspective. Now, by also centralizing information from Hitachi
ABB Power Grids, which has a customer channel comprisingmore than 15,000 companies, we will promote collaborations
that transcend business divisions and strengthen approaches
to customers. Furthermore, by linking management-related
data lakes, we will accelerate not only the analysis andmanagement of customer information but also decisionmaking. System construction is scheduled for completion by
fiscal 2022, and the scope of operations will be expanded
gradually after that.

Ensuring the stability of the financial base is an importantmanagement issue. For this reason, we will continue ourfinancial discipline policy of maintaining an A rating on issued
instruments and a D/E ratio of less than 0.5 times. At the sametime, we will ensure a return of profits with an awareness ofshareholder returns, for example, through growth investments
and continued increases in dividends. Our ability to generatecash is increasing steadily, and our ratings are as shown in thetable below.
Rating company

Long-term

Short-term

S&P Global Ratings Japan
Inc.

A

A–1

Moody’s Japan K.K.
(Moody’s)

A3

P–2

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

AA-

a–1+

Value Creation

Ensuring Financial Stability

To become a global leader in the Social Innovation Business,
Hitachi is accelerating M&A with the intention of realizing an
optimal business portfolio, and to promote efficient groupmanagement while strengthening governance, the Company isconducting a review of capital policy at listed subsidiaries andreducing the number of Group companies.
Although the number of consolidated subsidiaries increased
because of M&A activity, at the end of June 2021, there
were 865 consolidated subsidiaries (157 in Japan and 708
overseas), a decrease of 51 companies from the end of March
2020. Regarding listed subsidiaries, in April 2020, Hitachi soldshareholdings in Hitachi Chemical to Showa Denko, and in May
2020, Hitachi acquired the remaining shares in Hitachi HighTech, turning that company into a wholly owned subsidiary of
Hitachi, Ltd. Hitachi Metals is scheduled to be sold off before theend of fiscal 2021. This leaves Hitachi Construction Machineryas the last remaining listed subsidiary, and Hitachi continues
to review its capital policy regarding this company. We will
also continue to study and execute the sell-off of non-corebusinesses and measures targeting low-margin businesses.

VisionRestructuring the Business Portfolio

As of July 2021

Financial Analysis of the Past Five Years

D/E ratio

Adjusted operating income ratio

Trends in dividends

(%)
8.0

6.4

(times)

0.54
7.5

5.7

0.35

0.29

0.23

Payout ratio (%)
Payout ratios excluding
unordinary items (%)

62.7

0.23

27.1

2016

2017

2018

2019

2020

2016

(FY)

2017

2018

2019

2020 (FY-end)

2016

72.4

Total amount (billion yen)

101.5
91.7
104.8

86.9

39.1
20.0

2017

17.0

2018

19.8

2019

Governance

7.6

Sustainability

The following is a summarized financial analysis of the Hitachi Group for the past five years.
•	The adjusted operating income ratio has increased. In fiscal 2020, despite the harsh business environment resulting from the
COVID-19 pandemic, the profit ratio stayed above 5%.
•	As a result of strengthened cash management, in fiscal 2020, cash flows from operating activities reached approximately 800 billion
yen, exceeding adjusted operating income. The operating cash flow margin was the highest ever, at 9.1%.
•	As a result of M&A aimed at building the business portfolio, interest-bearing debt increased, resulting in a D/E ratio of 0.54x. We will
reduce interest-bearing debt and quickly improve the D/E ratio by increasing operating cash flows and selling off assets.
•	The payout ratio has remained between 20% and 30%, and the total of dividend payments has increased.

20.2
2020

(FY)

Total Shareholder Return (TSR)
The following illustrates Hitachi’s TSR, with fluctuations in dividends and stock price reflected.
While continuing to improve profitability and distribute a stable dividend, Hitachi is making concerted efforts to increase shareholder
value through management that is aware of its share price, based on business and financial strategies designed to improve TSR in
excess of the cost of shareholders’ equity.

300
250
200

Hitachi share price

Past 5 Years

Past 10 Years

Hitachi share price

AnnualAnnualAnnual
TSR
TSR
TSR
TSR
TSR
TSR
TSR
+62.6% +37.4% +11.2% +106.4% +15.6% +163.1% +10.2%

TOPIX+42.1% +22.1% +6.9% +62.3% +10.2% +179.4% +10.8%

TOPIX including dividends
TOPIX Electrical Equipment
including dividends

Past 3 Years

150

TOPIX Electrical Equipment +68.6% +48.4% +14.1% +134.3% +18.6% +226.4% +12.6%

100

Note: The graph and table above show return on investment for investments
made from the fiscal year ended March 31, 2011, taking into accountdividends and stock prices as of the fiscal year ended March 31, 2021.
Hitachi, Ltd., investment performance, including stock prices and dividends,
is indexed using 100 as the investment amount as of March 31, 2011. The
TSE Stock Price Index (TOPIX), which is a comparative indicator, is similarly
indexed using data including dividends for electrical equipment.

50
03
20
21
/

20
20
/0
3

3
20
19
/0

8/
03
20
1

/0
3
20
17

03
20
16
/

3
20
15
/0

20
14
/0
3

03
20
13
/

3
20
12
/0

20
11
/

03

0

Data

Past 1
Year

350

49

CFO Message

We will further promote management basedon return on invested capital (ROIC) andallocate the cash created through synergies
from large-scale acquisitions to enhanceshareholder returns and growth investments.
Yoshihiko Kawamura
Senior Vice President and Executive Officer, CFO
Joined Hitachi in 2015 after serving as an executive officer at
Mitsubishi Corporation. Leveraging the experience he gained at
Harvard Business School and the World Bank, he has playeda key role as CSO (Chief Strategy Officer) since 2018 and has
driven structural reforms and the design of the 2021 Mid-termManagement Plan. He was appointed CFO (Chief Financial Officer)
in April 2020.

Q

First, please give us your thoughts on
your first year since being appointed
CFO.

The COVID-19 pandemic, which broke out in 2020, isunprecedented in the history of modern management in that
this infection, representing a unique external variable, has
infiltrated the economic system creating a huge impact. The
thing that I emphasized first amid this crisis was returning
to the basics of financial management, that is, cash flow
management. We strengthened cash flow management withoverall coordination of elements such as working capital, R&D
investments, capital investments, and fixed costs and, as aresult, in the fiscal 2020, despite a decrease in revenues andprofit, the cash flow margin from operating activities was 9.1%,
the highest in Hitachi’s history.
We have been applying ROIC management since the firstyear of the 2021 Mid-term Management Plan. In addition tousing online meetings worldwide, we entrench this approachwithin Hitachi by conducting regular training to encourage a
deeper understanding of ROIC and weighted average costof capital (WACC). I feel that by increasing the awareness of
all employees through these types of day-to-day activities,
the ROIC tree is tied directly into concrete actions in thevarious workplaces. We disclose ROIC for each sector tooutside parties as well, and within Hitachi, we can monitor
each business in even greater detail. ROIC is included in all inhouse budget and settlement-related materials so that we canconduct discussions based on this. Even amid the COVID-19
crisis, we are enhancing ROIC management on a deeper level;
for example, we see businesses with a negative ROIC spread(the difference between ROIC and capital costs) as causing
damage to enterprise value, so we reexamine our businessstrategies in those cases.
In addition to taking out loans with financial institutions, Hitachi
issues corporate bonds and commercial paper. Our policy is to50

Hitachi Integrated Report 2021

maintain a debt/equity (D/E) ratio of less than 0.5x, considering
a combination of factors that includes discussions with rating
agencies. In fiscal 2020, however, the D/E ratio reached 0.54x
at the end of March 2021 because we used loans to procure
part of the capital to acquire ABB’s power grids business. We
plan to quickly get that ratio back down below 0.5x, eliminatingdebt by allocating profits from the sell-off of assets, as well
as operating cash flow, which will increase through businessgrowth.

Q

Please tell us about your approach to
M&A.

I have held a concurrent position as the head of the Investment
Strategy Division since April of this year, and I’m able to lookat investments and loans, so the financing and allocation ofcapital for acquisitions has been going even more smoothly
than in the past. For example, we needed about one trillion yen
for the acquisition of GlobalLogic, and we were able to movequickly in investigating capital financing procurement methods
and simulations of the short- and medium-term impact of theacquisition on financial and management performance KPIs.
In general, when you announce that you are going to undertake
an M&A project, there is a tendency for share price volatility toincrease in the short term. If you want to control that volatility,
it’s important to clearly communicate a medium- and long-term
equity story to the capital markets. In post-merger integration(PMI), the integration into consolidated management systems
is completed in a comparatively short period of just a few
months, but PMI takes two or three years after that to impact
performance. We focus our efforts on garnering synergies in
the medium to long term, as we amortize the intangible assets
involved in the acquisition.
In terms of the impact of integration at Hitachi ABB Power
Grids, we expect to see cost-reduction effects on a scale ofabout 100 billion yen by 2025, through the use of shared service

Q

Please tell us your thoughts on capital
allocation.

There are four important non-financial KPIs: governance,
climate change measures, the value of human resources, andthe happiness of human society.
Governance can be very difficult to present in the form of a KPI,
but in addition to the diverse background and experience of thepeople who make up the Board of Directors, my goal is to beable to explain to outside parties how these directors engage
in exchanges of constructive criticism with the executive side,
as well as discussions related to ethical behavior at board
meetings.
In climate change measures, Hitachi has set a target KPI ofachieving carbon neutrality in our own operations by 2030, andwe are accelerating these activities. We need to look at thisproblem from a broader perspective, however, so I believe wemust show an aggressive stance and involvement in activities
targeting this problem, while introducing how Hitachi will
reduce CO2 emissions in an economic society and how we
can contribute to the global environment, presenting actual
examples of R&D activities and specific contributions throughbusiness.
In terms of the value of human resources, first, it is important to
explain clearly how we encourage diversity and inclusion within
Hitachi. I can say with confidence that by fostering and training
our people worldwide through day-to-day corporate activities
in which we cultivate our technical strengths, we support theinternational competitiveness of Japan as a whole. I would
like to set this as a kind of KPI, as a means of communicating
Hitachi’s contributions.
Finally, and I think that this is the most important perspective,
there is the question of whether our corporate activities
help to improve the public welfare; in other words, whether
people’s lives are more culturally oriented, healthier, and richer
because of our corporate activities. This is the starting point
for all corporate activities, so I want to keep this in mind asa corporate citizen and ensure that we continue to ask thesequestions of ourselves.
My approach to non-financial KPIs is to maintain a focus on
these four perspectives and use these as key indexes for
management as we undertake activities that tie into increased
corporate value.

Governance
Data

What are your basic policies for returns
to shareholders?

In closing, please give us your thoughts
on non-financial KPI information anddisclosure of that information.

Sustainability

Q

Q

Value Creation

In capital allocation, we have no immediate plans for largescale loans or capital increases, but we will continue toincrease operating cash flow through growth investments
and secure funding by constantly switching out assets. We
consider returns to shareholders to be an important theme.
Our intent is to allocate about one-third of capital to eachof three areas: returns to shareholders and repayment ofloans, growth investments, and capital investments. We will
also further enhance R&D investments, targeting cumulative
investments of about 1.5 trillion yen over the three years fromfiscal 2022.
Growth investments are growth drivers that increase enterprisevalue. There are two ways of achieving our goals for growthinvestments: “organic growth,” where we increase the added
value of Hitachi’s own killer technologies, as in the case ofparticle beam therapy systems, and “inorganic growth,” whichis achieved by incorporating businesses from outside, likewhen we acquired ABB’s power grids business. Capital growthstrategies comprise regional strategies and sector strategies
with a three-dimensional approach, considering the timeline forinvestment efficiency.
In regional strategies, we monitor the status of marginalincome (increased profits in line with additional invested
resources) for both the domestic and overseas business,
and we are shifting the focus toward businesses with higher
marginal income (overseas business in many cases). Moving
forward, it will become increasingly important to factor in our
global strategies and design optimum strategies specific toeach region. There are two important elements to the sector
strategies: the perspective of market positioning for Hitachi’s
products and services (positioning strategy), and resourcebased strategies, which leverage Hitachi’s technical superiority
and other resources. In addition, we will back-cast from an
ideal form of the future and study capital allocation taking into
account R&D investments, M&A targets, and the economic
and management viability of those initiatives.

We will continue our efforts to increase shareholder value throughintensive engagement with the capital markets.

Visionfunctions involving the new company’s indirect operations in
Europe, including general affairs, HR, finance, accounting,and procurement. We are also promoting cross-selling andsynergies with Lumada in each business sector and, in somecases, the impact has already become apparent.

We will aim for returns to shareholders on three levels: not only
dividends and share buybacks but also increasing stock prices(capital gains). We will monitor dividend yield levels in otherbusinesses as well and aim for a stable increase in dividends
based on business growth. We will consider and undertake sharebuybacks while conducting a variety of simulations, keeping in
mind business growth, the sell-off of assets, and stock price levels.

51

IT Sector

Value Creation Story

Since the start of the COVID-19 pandemic in 2020, the digital transformation, which reshapes companies and society throughdigital technologies, has accelerated even further worldwide. The digital transformation has the power to move not only
business models at individual companies but also market structures and society. As a variety of issues come to light—for
example, climate change, aging social infrastructures, and the growing senior population—the IT sector brings about the digitaltransformation for customers and society by applying data and digital technologies such as AI and IoT, and contributes toimproving people’s quality of life and increasing corporate value.

Results and Forecasts
ROIC(%)

Principal Products and Services

Adjusted operating income ratio (%)

18.4

EBIT ratio (%)

17.8

11.9
10.2

13.2

12.7
12.0

12.0

11.2

Revenues/Overseas revenue ratio

FY2020 Revenues

2,048.7
billion yen

Front Business
Services & Platforms

2,099.4 billion yen/ 2,048.7 billion yen/ 2,200.0 billion yen/
30%
26%
25%
Services & Platforms
IoT platform

1,431.1 billion yen

1,414.2 billion yen

1,440.0 billion yen

Data analytics
AI
Cloud service

790.3 billion yen

FY2019(Results)

FY2020(Results)

890.0 billion yen

FY2021(Forecast)*1*2

Front Business

64%

Financial systems
IT for banking, insurance and securities
Public systems
IT for public offices, municipalities and educational
institutions

IT products (storage, server)

Systems for social infrastructure
IT for power generation/energy, transport andcommunication carriers

Control systems

Defense systems

Security

826.4 billion yen

36%

IT functions commonly used for all companies
Application development, engineering, operationand maintenance, project management andquality assurance*1 Announced on July 30, 2021
*2 Includes the impact on the Service & Platforms BU resulting from the acquisitionof GlobalLogic

Vision in the 2021 Mid-term Management Plan
In the IT sector, among the IT businesses undertaken since the1950s, we have established a business foundation through thedevelopment and provision of products and system integration(SI) in many mission-critical fields that support people’s lives,
such as train seat reservation systems and online banking
systems, building trust relationships with customers overmany years. Based on that business foundation, we haveaccelerated activities targeting digital business, including big
data analytics, AI and IoT, and since 2016, we have driven
the Lumada business using the power of digital technologies,
through co-creation with customers and partners. Moving
forward, we will target the digital transformation market, which
continues to demonstrate rapid growth worldwide, striving tobecome a global leader in this field.

52

Hitachi Integrated Report 2021

Achieving the digital transformation requires highly reliable
SI capabilities to handle the data and systems related tocustomers’ management. Agile development capabilities arealso required to respond flexibly to rapidly changing businessenvironments. We will make strides as a global leader in the
IT sector by combining the highly reliable SI capabilities that
we have cultivated through the construction of mission-criticalsocial infrastructures in Japan with GlobalLogic’s advanced
digital engineering and experience design capabilities. The IT
sector will continue to lead the Hitachi Group as a whole as we
strive to achieve Hitachi’s company-wide performance goals
for the Lumada business in fiscal 2025; namely, revenues of
3 trillion yen and adjusted operating income of 500 billion yen.

Market Environment
rapidly in all industries, with the average annual growth rate
predicted to reach 15% by 2024. Meanwhile, in Japan, evenas traditional IT investments remain flat, DX investments are
expected to continue growing, due to the shift to the cloud andthe use of AI, mainly in public services and financial institutions.

VisionEven amid the continuing unpredictable economic conditions
brought about by the spread of COVID-19, global IT
investments are expected to expand steadily, while Europe andNorth America are expected to be huge markets that accountfor roughly two-thirds of the global market. Global digitaltransformation (DX) investments are also expected to expand

Progress on the 2021 Mid-term Management Plan

To expand the Lumada business, we are promoting the N-fold
expansion of solutions and services provided to customers(Scale of Digital). For example, using Hitachi’s original
annealing-based quantum computer “CMOS annealing”(combination optimization processing technology), known as
quantum-inspired computers that do not make use of quantum
effects, and by working with customers in a wide range ofindustries, including Sompo Japan Insurance, the Sumitomo
Mitsui Financial Group and KDDI Research, we conduct tests,
develop and improve solutions to solve a variety of combination
optimization problems.

Sustainability

CMOS annealing

With the “Biometrics Integrated Infrastructure Service” that isbased on Hitachi’s proprietary Public Biometric Infrastructure(PBI) technology, we have achieved contactless personalauthentication and cashless settlements using finger veinauthentication, and we are expanding co-creation withmultiple customers. Scale of Digital is evolving steadily ina variety of fields—for example, “Materials Development
Solutions,” which apply materials informatics to develop andevaluate new materials using AI, data analysis, and otherdigital technologies—and has been adopted by around 40
companies, and “Risk Simulator for Insurance,” a medical big
data analysis solution that uses predictive models to simulate
future risk of hospitalization, is being applied in a growing

Governance
Data

In the IT sector, for some time now, we have striven to transform
Hitachi into a global leader and promoted the global rollout of theLumada business, mainly through our U.S. subsidiary, Hitachi
Vantara, taking advantage of the track record we have built
in Japan. We will accelerate this transformation by accurately
identifying needs in regions throughout the world, based on ourmanagement policies of strengthening support for customers’
digital transformation (DX) and expanding the global business.
The acquisition of GlobalLogic in the United States, which
was completed on schedule in July 2021, was one of theconcrete measures for achieving this goal. GlobalLogic is aleading company that uses digital technologies to innovate
customers’ business through advanced digital engineeringand experience design capabilities. It has a customer basecomprising more than 400 companies worldwide and has
many outstanding digital technology specialists at its eight
co-creation design centers and 30 delivery bases. When
providing digital transformation support to customers, it isessential to first identify the customer’s management issues
and to propose and offer appropriate solutions. Co-creation
with customers, backed up by innovative digital engineering
capabilities, is critical to the success of this approach. Highly
reliable SI capabilities are also required to integrate thosesolutions with the customer’s existing operating systems. In the
IT sector, we will accelerate growth in the digital transformation
market, which is expanding on a global scale, by combining thestrengths of Hitachi and GlobalLogic.
Specifically, we will expand the global business not only
through cross-selling but also by working with GlobalLogic topromote business that applies software assets scaled throughthe Lumada Solution Hub, based on more than 1,000 Lumada
customer cases already accumulated by Hitachi. We will
also increase the added value of Hitachi’s products throughGlobalLogic’s digital engineering capabilities and tie this into
the development of new Lumada solutions that bring about
digital transformations in social infrastructures. In this way, we
will utilize the business footprint of companies such as Hitachi
ABB Power Grids, Hitachi Rail, and JR Automation in North
America and Europe, the world’s largest IT markets, and rapidly
expand the global rollout of the Lumada business.

N-fold expansion of the Lumada business
Value Creation

Strengthening support for customers’ digitaltransformation (DX) and expanding the global
business

Contactless personal authentication and cashless settlements using finger
vein authentication

53

Value Creation Story

IT Sector

number of scenarios, including health guidance provided byinsurance companies and by municipal governments.
Overseas, Hitachi Vantara plays a central role in providing“Lumada Manufacturing Insights,” which support productivity
improvements by increasing visibility in all production lines,
from the gathering of 4M data (Method, huMan, Machine,
Material) through to manufacturing processes. They have beenoffered as a solution for optimizing equipments monitoringand productivity in the manufacturing industry. Up to now,
Lumada Manufacturing Insights have been provided tocustomers involved in the Vehicles, Industrial Products, Metals,
Mining, and Food & Beverage and other industries in North
America and in the APAC and EMEA regions, and we havebegun offering these services through the Microsoft Azure
Marketplace as well.

Lumada Manufacturing Insights

Contributing to the Environment, Resilience,and Security & Safety
Hitachi provides customers with social, environmental andeconomic value with a focus on three fields: the Environment,
Resilience, and Security & Safety. In this way, we strive tocontribute to realizing a sustainable society. The IT sector inparticular leads the Hitachi Group as a whole toward achieving
its goals through the power of digital technologies.

Environment｜Promoting the use of renewableenergy by optimizing the power supply/demandbalance
One of the key issues in the expansion of renewable energy
is fluctuations in demand for electric power depending on
the weather. In this context, measures for increasing systemstability will become increasingly important in maintaining thebalance of supply and demand.
In May 2021, Hitachi was selected as a system vendor fora “Demand Response Demonstration Project” targeting the
optimization of power supply and demand balance in Thailand.
The project is being undertaken by the Electricity Generating
Authority of Thailand, based on the Smart Grid Development
Master Plan, a comprehensive energy initiative led by the Thaigovernment. On this project, Hitachi will provide integrated
management systems that will enable multiple distributed
power sources, including renewable energy, to be managed asa single Virtual Power Plant (VPP).
Through the efficient operation of Thailand’s power transmission
and distribution facilities, we will contribute to building a smart
grid system that expands the capacity of renewable energy
systems.
54

Hitachi Integrated Report 2021

Resilience｜Supporting DX in mission-criticalbackbone systems
The “2025 Digital Cliff” refers to the many issues likely to arisein legacy systems from 2025 onward in various industries
in Japan, as those systems become increasingly complex,
obsolete, or more like black boxes. Hitachi responds tothese issues by promoting a shift to digital technologies inbackbone systems. As an example, for financial institutions,
we worked with The Shizuoka Bank in the joint developmentof a next-generation core banking system that operates on an
open platform, yet still offers the reliability and robustness of amainframe system. That system began operations in January
2021. We now offer the system as a packaged solution, which
is being introduced at other financial institutions as well.
In September 2020, the system was officially adopted by the
Shiga Bank. By applying open technologies in these missioncritical systems, it becomes possible to link and utilize FinTech
and other new financial services along with data application
services quickly and flexibly, enabling even more advanced
banking operations.
In this way, we contribute to expanding business, especially forregional financial institutions, and to the revitalization of regional
economies.

Security & Safety｜Contributing to a secure, safe
society through social infrastructure maintenanceservices
In social infrastructure maintenance, it is increasingly difficult tomaintain both costs and service levels from a previous era, due
to a decline in maintenance staff resulting from social issues
such as the aging population and the deterioration of existing
facilities.
In response, Hitachi offers a variety of services and solutions
as a social infrastructure maintenance platform, for example, toconduct efficient inspections using various digital technologies
such as AI, drones, ground penetrating radar, and waterleak sensors. By providing this platform to a wide rangeof customers, including local municipalities, infrastructure
providers and manufacturers, we contribute to minimizing
accidents, reducing maintenance costs, and rapid recovery in
the event of a natural disaster.

Social infrastructure maintenance services

Energy Sector

Value Creation Story

Results and Forecasts

Principal Products and Services

Adjusted operating income ratio (%)
Excluding related costs (%)(4.3)(94.1)*1

(5.0)

1%
ers 1
Oth

Fuel debris removal technologies
J

FY2020 Revenues

1%

e

%

C hi n a

ia
/As

2

Green business
Power semiconductors

1,320.0 billion yen/76%
156.6 billion yen
188.4 billion yen

Power Grids BU

Sustainability

169.3 billion yen

op1,107.9 billion yen/69%

21

Energy BU

Energy solutions/services

Eur

Nuclear Energy BU
Energy BUPower Grids BU

Nuclear fuel cycle technologies

17%

1,107.9billion yen

Revenues/Overseas revenue ratio

Value Creation

(2.7)

15%

Nuclear power plant ABWR

1%

7.8
2.8
2.3
1.9

2.0

Nuclear Energy BU

3
an
ap

6.4
3.4
3.4

EBIT ratio (%)

North Am
eric
a1
6%

ROIC (%)

VisionIn the energy market, while activities targeting to enable a decarbonized society are accelerating, the demand for electric poweris expanding due to the electrification of transport and industry, as well as economic growth and increasing populations inemerging countries. In the Energy sector, Hitachi will support the expansion of clean energy, which contributes to the reductionof CO2 emissions, through the power grids, energy, and nuclear energy businesses. Furthermore, we will strive to build a society
where people can use electricity safely and securely by supporting efficient energy infrastructure operations and the stablesupply of electric power.

68%

Grid automation and software

187.6 billion yen

HVDC (high-voltage direct current), STATCOM
Transformers, switchgears

399.2 billion yen/12%
155.7 billion yen

995.8 billion yen
758.4 billion yen

254.7 billion yen

FY2020(Results)

FY2021(Forecast)*2 *3*1 Impact from loss for the settlement on the South Africa projects*2 From fiscal 2021, figures for the transmission and distribution systems businesspreviously recorded in the Energy BU will be recorded in the Power Grids BU, andthe figures for fiscal 2020 have been retroactively adjusted*3 Announced on July 30, 2021

Governance

FY2019(Results)

Service

Market Environment
emerging countries.
To respond to constantly increasing demand for electric
power while striving to achieve carbon neutrality, we need toovercome a variety of issues. For example, we need to develop

Enhancing values as a global leader
in the field of energy in a sustainable society
Improve Quality of LifeAdd value for customers

Socialvalue

Environmental
value

Data

Activities targeting decarbonization and responses to climatechange are accelerating on a national scale, for example,
with the United States rejoining the Paris Agreement; morethan 120 countries and regions, including Japan, declaring
their intention to achieve carbon neutrality by 2050 (as of April
2021); and the 26th UN Climate Change Conference of theParties (COP26) scheduled to be held in November 2021.
Given this backdrop, investments in renewable energy, which
does not emit CO2 emissions when power is generated, areincreasing substantially, and it is expected that the share of
renewables in the global electricity supply will rise from 27%
in 2019 to 60% in 2030*4. Global demand for electric poweris also expected to increase dramatically in the future, forexample, because of increasing demand for data centers,
the spread of electric vehicles, and electrification in industrial
fields, as well as growing urbanization and economic growth inEconomic
value

Solving customers’ energy-related issues
by providing three types of value
Environment

Contribute to realize
a decarbonized society

Resilience

Supporting the stablesupply of energy

Security & Safety

Providing light to areas without
electricity and areas
with frequent power outages

Provide OT × IT × Products as a package*4 Source: IEA Global Energy Review 2019 and Net Zero by 2050

55

Value Creation Story

Energy Sector

technologies that handle new supply and demand complexities
in response to the increasing ratio of renewable energy, where
power output is influenced by weather conditions, and we needto increase the quality of electric power by providing reactive
power. Furthermore, it will be essential to have frameworks
for transactions and coordination for electric power sharing
and to enable green energy to be given priority in procurementand delivery to users, as well as broad ranging, highly efficientsystems that link renewable energy created in remote locations
to consumers’ locations. In terms of new investments and afundamental reexamination of power transmission systems
accompanying the shift from traditional power sources, itwill be necessary to ensure resilience in the face of threatssuch as natural disasters and cyberattacks, while maintaining
economic rationality.

Progress in the 2021 Mid-term Management Plan
In the Energy sector, we promoted a transition in the businessportfolio to resolve these issues in the fields of the Environment,
Resilience, and Security & Safety.
In addition to the clean power generation systems business,
including renewable energy and nuclear energy, we acquired
ABB’s power grids business and established Hitachi ABBPower Grids in July 2020 to strengthen the power grids
business, which is expected to see market growth. By
acquiring a business platform that picks up on needs
throughout the world and has continued to provide the world’s
most advanced power transmission and distribution systems,
the Hitachi Group has put in place a structure that enables it
to resolve customer issues and provide added value for power
generation and power transmission vendors as well as users
throughout the world.
In parallel with these business reorganizations, to contributeto improving social value, environmental value, and economic
value for customers, we are starting high-value-added
service businesses and strengthening the solutions business,leveraging the strengths of the Hitachi Group’s OT × IT ×
Products.
In this way, we will expand the provision of energy solutions
that support the digital transformations ongoing in regions
throughout the world, not only in the electric power field but
also in the development of smart cities, the establishment ofdata centers, and the electrification in mobility and industry,
which are essential to the realization of a sustainable society.
We are also promoting the use of Hitachi ABB Power Grids’
marketing presence, global footprint, and management base,which encompasses 115 plants and 200 offices in 90 countries
around the world, within the Hitachi Group. We will undertakea major change in direction toward
the expansion of global businessand support Hitachi’s managementbase by strengthening end-toend customer relations andestablishing an IT operation
platform through the creationof Global Business Services(GBS) that utilize corebusiness process systems.

Claudio Facchin
Senior Vice President
and Executive Officer of Hitachi,
CEO of Hitachi ABB Power Grids

56

Hitachi Integrated Report 2021

Power Grids Business
Becoming an energy platform provider that resolves
issues in the fields of the Environment, Resilience,and Security & Safety
Hitachi’s power grids business provides products, systems,
services, and software that are essential to the stable supply ofelectric power based on advanced engineering capabilities andto enable more efficient power transmission and distribution.
The Power Grids BU is focused on high growth market
segments, including high-voltage direct current (HVDC), EV
charging systems, data centers, and micro-grids, contributing
to a more resilient, smarter, cleaner energy supply throughout
the world.
In the HVDC field, in February 2021, we received an order
for a Voltage-Sourced Converter HVDC (VSC-HVDC) system
for the Dogger Bank Wind Farm, the largest of its kind in theworld, located in the North Sea about 130 km off the coastof the United Kingdom. The system will connect the offshore
wind farm with power transmission networks in the United
Kingdom, supporting decarbonization in that country. In Japan,
in March 2021, the operation of the Hida frequency converter
station was started. It is linked to Tokyo and strengthenselectric power ties between East and West Japan, which havedifferent frequencies, and improves the stability of the electric
power supply. Hitachi’s HVDC system has been adopted in thisconverter station.
In the industry field, we launched the “Grid-eMotionTM Fleet,”an EV charging system for electric buses and commercial
vehicles, in July 2020, and EconiQ TM, a product/service/solution package that supports the realization of carbon
neutrality, in April 2021. EconiQTM contributes to the transition
to green energy with a superior environmentally efficient
portfolio that emphasizes sustainability, for example, with highvoltage switchgears that use no sulfur hexafluoride (SF6) gases
and that have been proven to reduce relative CO2 emissions
by more than 50% throughout the entire life cycle, alongwith related maintenance services. We provide solutions that
support decarbonization and increased resilience throughout
the world; for example, in June 2021, we began offering powertransmission and distribution systems for floating offshore windfarms.
The operation management solutions provided by Hitachi ABBPower Grids to electric power vendors and to manufacturing,mining, and other industries were integrated into the Lumada

planning to apply hydrogen at Hitachi’s own facilities as a meansof verifying efficient supply chain operations, as well as technicaland economic feasibility. Hitachi’s energy business contributes
to realizing a decarbonized society by promoting renewableenergy and supporting
efficient operations andreductions in electric
power consumption andCO2 emissions in social
infrastructures.

Visionplatform to accelerate digitalization. Since January 2021,
we have been providing three key solutions that support
corporate management and operations in a broader range ofindustries: Asset Performance Management, Enterprise AssetManagement, and Field Service Management. In February, webegan providing the Smart Digital Substation equipped withpredictive diagnosis and failure prediction. Moving forward,
we will promote synergies with GlobalLogic, the acquisitionof which was completed in July 2021. By combining theworld’s leading energy platforms with digital platforms, we will
demonstrate value as a global leader in the energy field andcontribute to realizing a sustainable society.

Hitachi Power Solutions
Remote Monitoring and Support Center

Nuclear Energy Business

Source: Aibel

Dogger Bank Wind Farm (image)

Energy BusinessGovernance

BWRX-300 (Small Modular Reactor) (CG)Management with a view toward the form ofsociety and energy in 2050
As part of efforts to achieve a sustainable society throughactivities targeting decarbonization and the circular economy,
Hitachi seeks out issues based on the ideal form of the future.
In terms of issues “back-casted” from the future of energy andsociety in 2050, our policy is to undertake R&D in environmentfriendly technologies such as hydrogen fuel mobility and energy
storage, zero pollution, and recycling of water and carbon
resources.
As a global leader in the energy field, Hitachi will continue tocontribute to improving people’s quality of life and enhancing
value for customers and society by developing and providing
highly competitive digital and energy platforms, as well as
solutions that combine those platforms.

Data

Hitachi uses digital technologies to promote energy solutions
and services that support the stable supply of energy, stablefacilities operations, and increased operating efficiency, as wellas the green business, which strives to achieve a decarbonizedsociety.
Combining digital technologies with the technologies andexpertise we have cultivated over the years, we provide a
broad range of digital solutions and O&M services, including
remote monitoring, predictive diagnosis of failure, and increased
efficiency in inspection plans for wind power, solar power,
distributed power sources, and other power generation
systems. We will enhance value in the fields of the Environment,
Resilience, and Security & Safety by supporting DX for customers
and society, for example, through next-generation energy
management solutions and Energy & Facility Management as aService (EFaaS), which provide one-stop support for the efficient
operation and management of energy-related facilities that
require stable operation and improving operational efficiency forcustomers.
In addition to renewable energy, we are investing efforts into
promoting green business including the expansion of the power
semiconductor business and the creation of the hydrogenbusiness. In power semiconductors, in January 2021, wereleased a newly developed product, the TED-MOS, an SiC
power semiconductor device with a new structure that offers
both durability and low power consumption characteristics,
as a high-efficiency product that is essential to energy
conservation and the transition to electrification in importantsocial infrastructures such as power systems, railways, electricvehicles, and data centers. In the hydrogen business, we are

In the nuclear energy business, which contributes to a
decarbonized society and plays a role in the stable supplyof energy, Hitachi leverages its outstanding engineering
capabilities and extensive knowledge in this field to further
improve safety in the restart of nuclear power plants in Japan.
To promote the steady decommissioning of the Fukushima
Daiichi Nuclear Power Station, we are promoting R&D
targeting medium- and long-term issues in activities that
include the development of technologies for the removalof fuel debris, as well as decommissioning measures aslaid out in the Mid- and Long-Term Roadmap and the Midand Long-Term Decommissioning Action Plan 2021. We
will continue to contribute to the decommissioning of thispower plant through the development of these technologies.
Regarding small modular reactors, which are expected to be
in demand as an innovative nuclear reactor, we will focus on
joint development involving both Japan and the United States
as we consider customer viewpoints and nuclear energy
policy and develop
innovative nuclear
reactors that are safe,
economically efficient,and highly acceptable
to society.

Sustainability

Contributing to a decarbonized society by promoting
energy solutions and services and green business

Value Creation

Contributing to resolving energy-related issues byplacing the highest priority on security & safety57Industry Sector

Value Creation Story

In the industrial world, the market environment continues to undergo unprecedented rapid and complex changes because of adecrease in the working-age population, increasingly intense global competition, climate change, and the effects of COVID-19.
Against this backdrop, there is a greater need than ever for decarbonization and DX using advanced technologies such as AI,
IoT, and robotics, and new services and innovations are expected to be created in a variety of fields.

Results and Forecasts
ROIC(％)

Principal Products and Services

Adjusted operating income ratio (%)

EBIT ratio (%)

8.7

8.6
6.9

8.1

6.1

6.9

5.5

6.5

5.1
Revenues/Overseas revenue ratio

Industry & Distribution BU
Water & Environment BU
Industrial Products Business

840.7 billion yen/
21%

830.1 billion yen/25%

850.0 billion yen/25%

259.8 billion yen

305.3 billion yen

315.0 billion yen

173.3 billion yen

176.0 billion yen

424.0 billion yen

376.4 billion yen

390.0 billion yen

FY2019(Results)

FY2020(Results)

FY2021(Forecast)*1

179.6 billion yen

Industrial
Products BusinessIndustry &Distribution BU

44%

36%

Digital solution business

Mass-production
business

28%
Air compressors
Drive systems
Marking systems
Power distribution
equipment, etc.

FY2020 Revenues

830.1

billion yen
Built-to-orderbusiness

16%
Radial compressors
Drive systems
Pumps
Transport systems, etc.

Water &
Environment BU

20%

Water supply and sewage,
utility solution business*2*1 Announced on July 30, 2021
*2 Air-conditioning and water treatment facilities for factories, social infrastructure,etc.

Vision in the 2021 Mid-term Management Plan
In the Industry sector, the solution business targeting theindustry & distribution fields and the water & environment fields
accounts for 56% of revenues, whereas the product business,
which includes industrial machinery, accounts for 44%. This
sector is unique in that it encompasses a wide range of fields
from workplaces to management, that is, from products usedby customers on the workplaces to control and operational
technologies (OT) for those facilities and IT for corporate
management. We will leverage this experience and expertise
across a wide range of business domains, along with Lumada,

to connect the cyber and real spaces. As a result, we will provide
total seamless solutions on a global scale to resolve gaps,
which we view as “boundary” issues between management,
workplaces and supply chain, and achieve overall optimization.
In this way, to create not only social and economic value but
also sustainable environmental value, we are working to reduce
CO2 emissions by providing solutions that optimize production,
supply chains, and delivery; increasing efficiency in facilities
and the cycle of water resources; and incorporating IoT andreducing energy consumption in products.

Progress on the 2021 Mid-term Management Plan
In the Industry sector, we put forward a basic policy of
promoting business by “expanding and strengthening total
seamless solutions” and “accelerating global expansion,” whileat the same time, in fiscal 2020, we focused our efforts on
responding to changes in the market environment resulting
from COVID-19. We strengthened the business by shifting our

58

Hitachi Integrated Report 2021

resources into digital businesses and enhancing our solutions
in response to COVID-19. Meanwhile, we targeted fixed
costs and enhanced project management. We transformed
ourselves into an organization resilient to changes in the market
environment by combining proactive and reactive measures.

Market Environment and Business Strategies

Vision of the Industry Sector

Security &SafetyProviding people
with fulfilling andhealthy lives

OT

Value Chain as a Service

IT

Process modeling (digital twin solution)

Total seamless solutions

Ensuring
business
continuity

Consulting

Workplace

Resilience

Management

Achieve net zero
emissions

Accelerate DX, such as the reduction of required labor,
automation and contactless solutions that are becoming
increasingly sophisticated in the new normal

Products

Automatic production/
staff planning

Logistics

Maximum of

16 trillion patterns

Improvement of operation/
maintenance efficiencyof refrigeration equipment
Dashboard

for a plant
Configuring Master(narrowing down)

Absolute constraints(narrowing down)

Mathematical
Discretionary optimization
constraints
engineexiidaRemote monitoring/predictive diagnosis

CYDEENBI

EMilia-based cloud service platform
VPN network

Scoring multiple
plans withevaluation indicesIndustrial controller
for IoT applications
HX series

Effects of Introduction

Planning time
Shortened to 1/10

Production system that quickly
responds to changes in demand

Sensing technology

Tablets
Inspection assistance Electronic
technology
ledger sheet

Refrigeration equipment

Reducing environmental burdens

Co-creation with Seiyu and Workman provides examples ofusing digital technologies to connect horizontal “boundaries”
in the supply chain, for example, between suppliers,
manufacturing, distribution, and the market. The deli divisionat Seiyu, a major Japanese supermarket operator, used
Hitachi’s AI demand forecast auto replenishment service toconnect sales sites with the market, building a structure that
dramatically reduced complex order placement operations,and allowed more energy to be focused on in-store kitchen
operations and customer services. Workman, a major provider
of work clothes, handles approximately 100,000 products,
with approximately 14,000 items at each outlet. The company
began introducing the AI demand forecast auto replenishment

Examples of Connecting Horizontal “Boundaries”
through Co-creation with Seiyu and Workman
Hitachi Digital Solution for Retail/AI demand forecasting based
automatic order placement service

Sales
operation

Automatic orderplacement

Data

Co-creation with two companies in the Nichirei Group provides
an example of using digital technologies to connect the vertical“boundaries” between management and workplaces. In
production and staff planning for Nichirei Foods’ manufacturing
and processing plants, the company introduced Hitachi’s
original systems that combine AI and mathematical optimization
technologies. In this way, we were able to automatically create
optimum solutions based on up to 16 trillion production andstaffing plans for each plant, thereby reducing planning time
to approximately 1/10th of previous levels. We also provided

Manufacturing /Processing

Governance

Environment

Solve issues of “boundaries” between companies
and organizations to maximize customers’ total profits
Value provided only whenconnections are established

Change incustomers’
management
perspectives

Example of Connecting Vertical “Boundaries” throughCo-creation with the Nichirei Group

Sustainability

In this market environment, value that can be provided
through seamless connections is increasingly important.
Using Lumada, we provide venues for connecting thevertical “boundaries” between management and workplaces;
connecting the horizontal “boundaries” between supply chains;and connecting the “boundaries” between different industries.
In this way, the total seamless solutions that are unique toHitachi, resolving the issue of “boundaries” and maximizing
total profit for customers, will come to represent a major factor
that differentiates Hitachi from the competition.
In the Industry sector, we will strive to expand and strengthen
total seamless solutions through co-creation with customers. To
this end, we will leverage Hitachi’s strengths in AI, mathematicaloptimization technologies, and other advanced technologies;
advanced manufacturing (monozukuri) capabilities cultivatedthrough our extensive track record in manufacturing, workplace
experience, and other forms of domain knowledge; andcustomer relations built on our broad customer base.

Value Creation

Total Seamless Solutions that Resolve“Boundary” Issues

solutions that combined the Hitachi Group’s technologies
to increase operating and maintenance efficiency for freezer
facilities operated by the Nichirei Logistics Group. The HX series
of industrial controllers for IoT applications offered by Hitachi
Industrial Equipment Systems was used to gather field data,
and those data were then compiled on a cloud service platform
based on EMilia, an integrated Energy & Equipment Management
Service, to conduct operational and failure prediction diagnostics.
In this way, we contribute to reducing environmental impact
and establishing a resilient production system that enables the
Nichirei Group to respond quickly to changes in demand.

VisionAmid rapid changes in the market environment, including the
spread of COVID-19, increasing geopolitical risks, growing
awareness of the environment, and a transition to a recyclingoriented society, it has become important to create value in threefields: the Environment, Resilience, and Security & Safety. In
this new normal, in addition to securing employees’ safety andincreasing productivity via automation, contactless, and remote
operations, the issue of “boundaries” has come to light in thecontext of business continuity when supply chains are disrupted.

Variation Variation
Sales
Sales Order placement
by day by season promotion Stockout
floor
to delivery
of week
event
planogramlead time
Order
Calculation forplacement
Demand forecasting
Inventory optimization
order placement
operation

Effects of Introduction (WORKMAN)
Shortening order placement operation from approx. 30 minutes to approx. 2 minutes

SEIYU

WORKMAN

Cumbersome order placement operation wasContributed to stockout reduction andreduced drastically, which allows focusing on
inventory optimization of 100 thousand items
kitchen operations and customer services
that have different sales turnover ratios
In future, they will aim to reduce stockouts and food loss

59

Value Creation Story

Industry Sector

service targeting products with different sales turnover rates,with a goal of reducing the time required for order placement
operations from approximately 30 minutes per day to about 2
minutes, while at the same time minimizing stock outages andoptimizing inventory. In this way, we contribute to increasing
productivity in the sales sites, preventing lost opportunities,
and strengthening resilience.
Collaborations with Hitachi Transport System provide an
example of a venue that uses digital technologies to connect
the “boundaries” between different industries. The logistics
industry is facing issues including accident prevention anda declining population of truck drivers. By combining Smart& Safety Connected Vehicle (SSCV)-Safety, a safe driving
management solution that uses Hitachi Transport System’s
original algorithm, with Hitachi’s digital platforms for thelogistics field, information on the driver’s biological and physicaldata before, during, and after driving, as well as information on
vehicle behavior, is accumulated in the cloud. This informationis then managed and analyzed to support both safe, secure
driving and increased efficiency.

Providing a Place for Connecting through Co-working
with Hitachi Transport System
Digital platform for logistics x biological data/operation data x delivery optimization service

SSCV-Safety on Hitachi Digital Solution for Logistics
Hitachi
SafetyTransport
Safe operation
Systemmanagement
Smart
VehicleOperating
Vehicleeffectivenessmanagement
improvement
Before/after operation
Biological data of driver

Drive Recorder
Data management clouddelivery optimization
Hitachi Digital Solution for Logistics
Lumada Solution HubDuring operation
Vehicle behavior

Respond to decrease in number oftruck drivers/accident preventive measures

During operation
Physical condition data

Real-time operation management
utilizing IoT technologies

In the water & environment field, we provide operation andmaintenance (O&M) support digital solutions of cloud services
that combine the experience and expertise that Hitachi
has cultivated over many years in Products × OT × IT as acomprehensive water service provider. The service contributes
to increase visibility and efficiency, reduce labor, and pass on
expertise related to operation and maintenance in the water andsewage treatment business. We apply advanced technologies
and services to increase efficiency in facilities operations andrelated processes; for example, in April 2021, we added newfunctions that leverage the power of AI in facilities diagnostics,
water quality forecasting, and operational support.

Accelerating Global Business with a Focus on
North America
In 2017, we strengthened the North American product businessthrough the acquisition of Sullair, an American air compressor
manufacturer, and in 2019, we acquired JR Automation in the
United States and KEC in Japan as part of efforts to build aplatform for the robotic SI business, which is expected to see
rapid growth amid labor shortages and rapidly increasing laborcosts. In fiscal 2020, despite the impact that COVID-19 had

60

Hitachi Integrated Report 2021

on the economy, we successfully grew and expanded thesebusinesses by steadily executing post-merger integration(PMI) at those two newly acquired companies. Sullair has
demonstrated steady growth through improvement measurestargeting resilient structures, including a steadily growing newcustomer base, flexible production systems, and increased
cost competitiveness in products. Meanwhile, JR Automation
has expanded its business domain from its original businessportfolio, which focused mainly on the automotive industry,
to include the e-commerce and medical markets, which are
expected to grow in the future, thereby dramatically increasing
both new orders and revenues.
In April 2021, we acquired Kyoto Robotics, a Japanese startup that develops intelligent robot systems, to further strengthen
robotic SI functions. The robot systems offered by Kyoto
Robotics boast world-class 3-D vision systems, featuring a 3-D
recognition rate of 99.99%, masterless object recognition, andthe industry-leading depalletizing capability. All these strengths
make Kyoto Robotics a powerful ally in strengthening businessin the logistics and factory
automation fields.
In April 2020, we established
Hitachi Industrial Holdings
Americas, a supervisory
company for the North
American region, to fortify
the business base in that
region.
Kyoto Robotics’ intelligent robot system

Rapidly Merging the Robotic SI Business andDigital Technologies
We are rapidly merging the robotic SI business, which has been
fortified mainly in North America, with Hitachi’s outstanding
digital technologies. For example, in the manufacturing ofaircraft parts in North America, JR Automation is involved in theautomation of large-scale robotics and transport/manufacturing
facilities, using digital technologies tied into enterprise resource
planning (ERP; integrated backbone operating systems) andmanufacturing execution systems (MESs). Moving forward,
Hitachi will strengthen unified activities with JR Automation,
KEC, and Kyoto Robotics transcending the boundaries ofregions, and based on that business platform, will expand themerging of the robotic SI business and digital technologies
from North America to include Europe, Japan, and ASEAN
countries. Furthermore, in collaboration with GlobalLogic, forwhich Hitachi’s acquisition was completed in July 2021, we
will further expand the business to encompass E2E digitalsolutions that use digital technologies to connect managementwith workplaces.

Targeting Further Growth in the Industry Sector
To achieve even further growth in the Industry sector, we will
strengthen and expand total seamless solutions and accelerate
our global expansion through co-creation with customers,
while at the same time using highly efficient products and digitaltechnologies to create sustainable environmental value.

Mobility Sector

Story of Value Creation

Results and Forecasts
ROIC (%)

Principal Products and Services

Adjusted operating income ratio (%)

EBIT ratio (%)

Manufacturing/Installation ofElevators & Escalators

APAC, Middle East and others

58%

6%

10.8

9.8
8.9

6%

billion yen

5Revenues/Overseas revenue ratio

679.1

na

6.2

E&E modernization
E&E maintenanceservices
Building solution

C hi

8.1

Building
Systems BU
FY2020 Revenues

42%

Building Systems BU
Railway Systems BU

North America

11%

FY2020(Results)

FY2021(Forecast)*1*1 Announced on July 30, 2021

Very high speed
Shinkansen
CommuterIntercity
LRV
Metro
Monorail
Components

Service & Maintenance17%

RS maintenance
RS refurbishing
Signaling operation &maintenance
Asset management

Governance

FY2019(Results)

547.7

billion yen

7%575.0 billion yen/84%

Railway
Systems BU
FY2020 Revenues%

547.7 billion yen/
80%

Interlocking
Satellite train
control
CBTC*
Components
TMS*
ETCS*
Driverless
Facility control

Jap
an
,

52

580.3 billion yen/
79%

43%

40%

3
AC
AP

679.1 billion yen/62%

700.0 billion yen/
64%

Rolling Stock

Signaling & Turnkey

E MEA

591.5 billion yen/55%

1,199.6 billion yen

1,250.0 billion yen

Sustainability

1,144.4 billion yen

Elevators
Escalators
Moving walkways

Value Creation

10.2
9.9
8.2

Building Services

38%
pan
Ja

11.3

VisionIn the Mobility sector, which comprises the Building Systems and the Railway Systems businesses, Hitachi offers safe, secure,comfortable, and eco-friendly products and services to customers throughout the world. Specifically, each business provides
solutions that serve as key elements of clean and highly efficient smart cities, including smart solutions that facilitate faster andmore eco-friendly travel between cities, reduce reliance on automobiles inside cities, and enhance the flow of people inside
high-rise buildings.

* CBTC: Communications-Based Train Control
TMS: Traffic Management System
ETCS: European Train Control System

Vision in the 2021 Mid-term Management Plan
Data

In the Mobility sector, Hitachi will contribute to increasing social
value by providing safe, secure, and comfortable transportation
services, as well as solutions to issues in buildings and urban
spaces in buildings and other urban spaces. At the same time,
we will generate environmental value by creating transportation
services with minimal impact on the environment; for example, byreducing CO2 emissions. Based on powerful business platforms
in building systems and railway systems, we will strive to achieve
revenues of 1.85 trillion yen by fiscal 2025, by promoting
sustainable digital connectivity that leverages new technologies,

with a view toward market recovery after the pandemic. At
the same time, we will continue to increase profitability bystrengthening the business portfolio and implementing process
reforms, aiming for an adjusted operating income ratio of 11% or
more, and ROIC exceeding 13%.
The Mobility sector has strong fundamentals. In fiscal
2021, we expect to grow and improve profitability, despite
the impact of COVID-19. We have revised our portfolio,
disposing of non-core assets and preparing for future growthin new markets. We are well-positioned to benefit from thepost-pandemic recovery.

61

Story of Value Creation

Mobility Sector

Market Environment
Building Systems Business Unit
In the elevators and escalators (E&E) market, where businessis handled by the Building Systems Business Unit, althoughmany regions were affected by COVID-19 in fiscal 2020,
Hitachi saw substantial growth in this market, due to a rapid
recovery in demand in China, the world’s largest E&E market,
which accounts for approximately 60% of new installation
demand worldwide. From fiscal 2021 onward, we expect tosee a gradual recovery in other regions as well, so our overall
outlook is for steady market growth. In China, we expect toenjoy stable growth in new installation demand in the future,
and we also expect growth in the service business, which
includes maintenance and modernization for E&E products
already installed. We have seen growing demand for new
E&E installations in many countries, including India, whichis the most promising market after China, and countries inSoutheast Asia. Meanwhile, in Japan, which is a mature
market, the effects of COVID-19 have given rise to demand
for new high added value in buildings and offices, and we
expect to see a further increase in demand for digital solutions
at the core of smart buildings. Demand for digitalization inbuildings—for example, in the context of facility management,
energy management, security, and signage—is expected tosee rapid growth on a scale of approximately 15% per year
from 2019 through 2024.

Railway Systems Business Unit

Washington, D.C., as well as our new monorail project inPanama.
The long-term impacts of the pandemic are still not fully
understood. However, the latest rail market forecasts by
UNIFE, a European industry body, are largely optimistic.
In the past year, our customers experienced a severe
shock due to the downturn in travel, which had a major
financial impact on them. Two things will help them recover:
governments stimulating the economy by investing in new
infrastructure, and finding new ways of operating, enabled bydigital technologies and Mobility as a Service (MaaS) businessmodels.
Overall, strong environmental momentum exists that should
support the rail sector in the long term. Globally, governments
have declared their raised emission targets, and over time webelieve they will continue to invest in rail to reduce emissions.
For example, we are seeing agreements among some
European rail operators and airlines to displace some shorthaul flights with rail travel.
Accelerating the decarbonization of the rail industry itself isalso important. We announced new collaborations in fiscal
2020 to develop battery and hydrogen trains to help us tackle
environmental challenges. Further in the future, an alternative
to airline travel will be Hyperloop, and this year we started
collaboration with Hyperloop Transportation Technologies tomake use of our rail experience in a new sector with exciting
potential.

COVID-19 created challenges during fiscal 2020. For instance,
our rail factories in the U.K. and Italy were closed for several
weeks, which impacted revenues for the year. The otherbig challenge of COVID-19 was some of our large turnkey
projects, where we often rely on our engineers being able
to travel internationally to work closely with our customers.
This year, travel restrictions meant it was harder to get ourengineering teams onto sites.
The good news is our business was still profitable, even in thischallenging year. Although adjusted operating income wasdown year on year, our EBIT was above the target we set,
generating good returns for shareholders.
In fiscal 2020, we expanded our railway systems businessfrom Europe, making major inroads in the North American
market by winning new projects in San Francisco andProgress in the 2021 Mid-term Management Plan
Building Systems Business Unit
Until now, in the Building Systems Business Unit, we havestrived to achieve business growth and increase profitability
mainly in Japan, China, and other Asian markets, both throughthe manufacturing and sales of E&E, and through building
services, which include the maintenance and modernization62

Hitachi Integrated Report 2021of those products, along with building solutions. In April 2021,
we revamped the management structure worldwide, aiming
for global growth through rapid business operations led byfour regions including Japan, China, Southeast Asia andstrategic focus markets such as India and the U.K.

Delivering environmental and social value
One of our most important priorities is to deliver environmental
and social value through our core business. By delivering new
projects, we are providing higher-quality, safer infrastructure
and connecting people to new opportunities. In this way, weare delivering social value.
One project that achieves this aim is Line 2 of the Lima Metroin Peru. We are providing both rolling stock and the systems
for train signaling and control on this line. The project in Lima
is a good example of social value because until recently thishuge global city and growing economy had very little public
transportation. Rail access can offer major value to the people
who live in Lima, as it provides access to future jobs andeconomic opportunity. By displacing cars, rail can improve
air quality and reduce CO2 emissions and traffic congestion.
On the environmental side, we support governments investingin rail as an environmentally friendly alternative to both aviation(through high-speed rail) and use of private cars in congested
cities (through metro and light rail systems). Through ourinvestments and partnerships in developing battery andhydrogen trains, we are also helping to decarbonize therailway itself.
Our railway systems business is also working to decarbonize
itself. From 2018 to 2020, the railway systems business’s nonJapanese entities reported a reduction in carbon emissions ofnearly 15% per hour worked.

Sustainability

Promoting our digital strategy
In fiscal 2020, 20% of the Rail business revenues derived from
Lumada, and this figure is expected to grow. We are focusing
in particular on MaaS, an area where we can harness digital
capabilities that complement our current core business.
These could be passenger-facing, such as digital ticketing
services, or technologies that connect the entire railway to
improve overall performance.
A good example of this in fiscal 2020 is our acquisition of
Perpetuum, a U.K. company. Perpetuum uses self-powering
wireless sensors on trains to understand when safety-criticalparts are deteriorating. This helps to optimize maintenancecycles and reduces industrial waste.

Governance

Aiming to be a market leader in building solutions

Data

In the Building Systems business, we have been utilizing
cutting-edge digital technologies ahead of other businessfields. For example, we have adopted the approach ofanalyzing and utilizing E&E operational data gathered using IoTtechnologies to develop and provide highly reliable products
as well as high-quality remote monitoring and maintenanceservices using AI. The Lumada business accounts for nearly
20% of revenues in the Building Systems business, andmoving forward, we will gather and aggregate various typesof data, including operational data from building facilities, asa means of contributing to the realization of smart buildings.
We will do this, for example, by offering an IoT solution forbuildings that increases the efficiency and quality of building
management, and a solution for office workers that provides
workers with useful apps on a smart phone, for example, toshare information or reserve building facilities. Our goal is toaccelerate the digitalization of business and maximize theRailway Systems Business Unit

Value Creation

Standard Elevator

value provided throughout the entire value chain, from new
E&E installation to maintenance, modernization, and building
solutions, in order to achieve our target revenues of ¥1 trillion
and an adjusted operating income ratio of 12% in fiscal 2025,
and to become a market leader in this field.

VisionActivities specific to global markets
In Japan, although there have been some delays in new
installations and modernizations of E&E due to the effects
of COVID-19, we have introduced products and services
one after another in response to needs in the era of the newnormal—for example, solutions aimed at reducing the riskof infection through touchless elevator operations and air
cleaning in elevator cars, and a new standard elevator model
released in April 2021—to quickly meet new customer needs.
In China, the world’s largest market, Hitachi maintains the
top share in the number of new E&E units ordered, based on
the strengths of its outstanding product competitiveness.
In fiscal 2020, we set a record for the number of new
installations in the backdrop of a rapid recovery in demand
post-COVID-19. In addition to the increase in new
installations, the service business continues to expand,including maintenance and modernization. In October 2020,
we acquired a majority of the shares in Yungtay Engineering
Co., Ltd., Taiwan’s largest E&E company, making it a part of
the Hitachi Group. Moving forward, we will accelerate thebusiness integration with Yungtay Engineering, enhance theE&E product lineup, and strengthen cost competitiveness,thereby strengthening our
response to demand in
third-tier and fourth-tiercities in China, where
growth is expected, whileat the same time leveraging
the merits of scale in
the Chinese businessto expand business inother promising markets,
including Asia.

63

Smart Life Sector

Value Creation Story

There are increasing expectations that “Smart Life” will improve quality of life via digital technologies such as IoT and AI,
for example, by extending healthy life expectancy and reducing the burden of housework. In the Smart Life sector, Hitachi
contributes to the realization of Smart Life through Hitachi High-Tech’s measurement and analysis systems business andsemiconductor manufacturing and inspection equipment business, and through Hitachi Global Life Solutions’ Smart Life & Ecofriendly Systems businesses, creating social, environmental and economic value.

Results and Forecasts*1
ROIC (%)

Principal Products and Services*1

Adjusted operating income ratio (%)

16.1

EBIT ratio (%)

15.0

Diagnostic
Imaging-related
Business

Smart Life &Eco-friendly
Systems

16%

Diagnostic systems
Therapy systems

10.8
7.1
6.5
Revenues/Overseas revenue ratio

8.7

Note: The diagnostic imaging-related
business was transferredon March 31, 2021.

9.7
6.3
Smart Life & Eco-friendly Systems
Measurement and Analysis Systems
Others

1,356.0 billion yen/
1,252.7 billion yen/
45%
45%465.3 billion yen
456.3 billion yen

Industrial
Solutions20%
Nano-technology
Solutions

1,000.0 billion yen/45%
409.4 billion yen

694.6 billion yen

36%

Home appliances
Air-conditioning systems

FY2020 Revenues

1,252.7
billion yen

Analytical &MedicalSolutions

11%

17%
Measurement andAnalysis Systems

48%

606.3 billion yen
558.0 billion yen

196.1 billion yen

190.1 billion yen

FY2019(Results)

FY2020(Results)

FY2021(Forecast)*2*1 From fiscal 2021, figures for the Automotive Systems business are posted as
the Automotive Systems segment. Figures for the Smart Life sector have been
retroactively adjusted to reflect this change*2 Announced on July 30, 2021

Vision in the 2021 Mid-term Management Plan
The goal of the Smart Life sector is to expand business in four
growth fields: healthcare, semiconductors, homes, and electricvehicles (EVs) by strengthening activities in Hitachi’s three main
fields—the Environment, Resilience, and Security & Safety.
Specifically, we will apply digital technologies to improve thefunctions and convenience of top share products, and at thesame time expand the service business through co-creation
with customers. We will create competitive solutions for
growth markets and strive to further improve quality of life, forexample, by contributing to extending healthy life expectancy

64

Hitachi Integrated Report 2021

through the use of innovative technologies on in-vitro diagnosis
enhanced by Lumada data analysis technologies and AI;
accelerating the transition to 5G and digital technologies by
increasing the performance of semiconductors; achieving
richer lifestyles through the use of AI and robots in the home;and reducing the rate of traffic accidents through autonomous
driving and advanced driver assistance. We will also work
to reduce environmental impact by providing environmental
solutions by optimizing EV operation management, EV battery
management and air-conditioner operations.

Market Environment
conditioning field in the Smart Life & Eco-friendly Systems
businesses, time spent at home has increased as a resultof the COVID-19 pandemic, so there is growing demand
for more comfortable living environments. Furthermore,increased concern for the environment has boosted the global
proliferation of EVs. This is expected to increase demand forsolutions aimed at reducing EV total costs through operation
management and battery management.

VisionThe biomedical and life science fields in the measurement andanalysis systems business are expected to see dramatic growthin the future as well because there are many unmet needs andbecause related sciences are developing at a startling pace.
The semiconductor manufacturing and inspection equipment
businesses, which support the transition to 5G and digitaltechnologies, are showing continuous growth due to growing
demand for semiconductors. In the home appliance and air-

Reduction of CO2 resulting
from the spread of EV
Lower accident rate attributed toautonomous driving

Sensingtechnologies

Autonomous
drivingwith digitaltechnologies
and AI

Semiconductor inspections
supporting digital technologies
and 5G

Semiconductor
inspection
equipment

Semiconductor Manufacturing and Inspection
Equipment Business
Hitachi High-Tech demonstrates strengths in plasma etchingsystems that enable ultrafine processing of semiconductors,
as well as high-resolution, high-speed inspection equipment,
built on a foundation comprising electron microscopes andother high-precision measurement and analysis technologies.
In advanced CD measurement SEM, in particular, Hitachi HighTech holds a top position with approximately 80% of the global
share in this market.
Leveraging these strengths, we will create new business basedon Lumada solutions by incorporating into Lumada frameworks
the expertise in data analysis for semiconductor manufacturing
and inspection that Hitachi High-Tech has cultivated up to now.
We will also create new value by further accelerating thedevelopment of Lumada solutions that support technology
innovations at partner companies. As an example, we willcontribute to strengthening resilience in response to constantly
changing and growing demand in the semiconductor market
through co-creation with partner companies—mainly asemiconductor technology development base being establishedin Oregon—targeting Lumada solutions that support to shorten
development turnaround time and improve productivity andyield during each semiconductor manufacturing phase.

GovernanceContributing to realizing smart lifein the four growth fields ofEV, semiconductors, healthcare, and home

capabilities, we will strive to create synergies in the automotive,
healthcare, and consumer fields, which we expect to have a highlevel of affinity with the Smart Life sector.

Sustainability

Up to now, in the Smart Life sector, we have revised ourfundamental business portfolio. In May 2020, we made Hitachi
High-Tech a full subsidiary, positioning this company as acore business in the Smart Life sector, and in March 2021,
we completed the transfer of the diagnostic imaging-related
business to FUJIFILM. Then, in January 2021, we established
Hitachi Astemo through the management integration of
Hitachi Automotive Systems with Keihin Corporation, Showa
Corporation, and Nissin Kogyo Co., Ltd. Starting from fiscal
2021, Hitachi Astemo has been operating independently fromthe Smart Life sector. During the current fiscal year, in July
2021, we established a joint venture with the Turkish company
Arçelik in the overseas home appliance business.
We will increase profitability by accomplishing these businessstructure reforms and by strengthening Lumada solutions via AI
and digital technologies in four fields: healthcare, semiconductors,
homes, and electric vehicles. We will also accelerate businessgrowth in these fields by investing the cash generated throughbusiness transfers and other initiatives mainly into the healthcare
field, where especially high rates of market growth are expected.
Meanwhile, by leveraging GlobalLogic’s digital engineering

Value Creation

Progress on the 2021 Mid-term Management Plan

High precisionenabled bydigitaltechnologies
and AI

Data

Extending healthy life
expectancy andimproving QoL

In-vitro
diagnosis(Early/prognosis)

Selection of
optimal treatment
with digitaltechnologies
and AI

Reducing the burdenof routine householdtasks and helping enrich life

Connected home
appliancesand robots

Improvingwellness
with digitaltechnologies
and AI

Hitachi Center of Excellence in Portland, a new semiconductor engineeringbase in the United States (image upon completion)

65

Value Creation Story

Smart Life Sector

Healthcare Business
Hitachi has been reforming the business portfolio in thehealthcare field, in keeping with market growth potential. In thisfield, Hitachi High-Tech’s clinical chemistry and immunoassay
analyzers boast a top global share, with some 20 billion tests
being conducted worldwide each year. Hitachi’s particle
therapy system also hold the global No. 2 share, offering
cutting-edge cancer treatments that minimize discomfort andenable patients to carry on with their daily lives even as they
undergo treatment.
To accelerate growth in these business fields, for three years
starting in fiscal 2021, we will make strategic investments of 300
billion yen in four fields—in-vitro diagnosis, cancer radiotherapy,
pharmaceutical solutions, and medical data integration—
establishing these fields as a core area of business in thenext Mid-term Management Plan. In in-vitro diagnosis, we will
strengthen the molecular diagnostic business, which enables
earlier cancer diagnoses through the measurement of cancer
DNA in the blood, as well as more effective treatment selection
and prognostic management. In cancer radiotherapy, we will
strive for innovations in core accelerators to further support
highly efficient and minimally invasive cancer treatments. In
the pharmaceutical solutions field, we will leverage the highly
efficient cell culture technologies that we have developed
through the differentiated culturing of iPS cells. We will support
the medical application of these cells, as in the case of immune
cell therapy for cancer. Furthermore, by applying AI thatincorporates medical knowledge into diagnostic and treatment

data, we will promote medical data integration analytics that
support the selection of optimum medical treatments.
In addition to strengthening R&D and investments in thesefour growth fields, we will accelerate open innovations incollaboration with academia and start-ups and support the
rapid realization of new medical treatments as we strive toincrease peoples’ quality of life and achieve a safer, moresecure society.

Smart Life & Eco-friendly Systems Business
The Smart Life & Eco-friendly Systems business, where Hitachi
has a long history of developing products from a consumer
perspective, holds an important position in the Smart Life sector,
which strives to increase people’s quality of life. We create awide range of solutions using digital technologies, including newconnected appliance products such as robot vacuum cleaners,
washing machines, and refrigerators that can be controlled
and managed via a smartphone, and IoT based remote airconditioning diagnostic and maintenance systems.
As a result of the COVID-19 pandemic that began in 2020,
people have been spending more time at home, and thishas led to growing demand for more comfortable living
environments. In response to these trends, we will strengthen
the Lumada business and contribute to realizing safe andsecure homes by creating advanced lifestyle solutions thatfurther enhance network functionality for home appliances andby developing solutions that incorporate the “LOVOT” homerobot created by GROOVE X, Inc. (capital and business allianceagreement completed in December 2020).

Environmental Solutions

The LABOSPECT 008 α (an automatic analyzer) and the MiRuDa (an analysis
tool for approximating the reaction process)A proton therapy system at the Clinica Universidad de Navarra in Spain (thefirst system Hitachi has delivered in Europe)

66

Hitachi Integrated Report 2021

In the Smart Life sector, Hitachi provides Lumada environmental
solutions that contribute to reducing environmental impact.
In the field of electric vehicles (EVs), in particular, which are
expected to play a large role in resolving environmental issues,
we leverage the battery control technologies that we havecultivated over many years to develop and provide solutions
for optimizing the life cycle of EV batteries. In this way, we willcontribute to the effective use of resources throughout thebattery life cycle, including manufacturing, use, and reuse/recycling, and to the realization of a sustainable society.
We will also promote links with the Industry sector in theprovision of solutions targeting air-conditioning and freezer
facilities used by customers in the food industry and thehealthcare field. For example, we will collect remote monitoringdata through the IoT-based air-conditioning solution “exiida”
and use this data to support highly efficient facility operations.
In activities targeting the reduction of CO2 emissions within
the Hitachi Group, we achieved carbon neutrality early on
at four Hitachi high-tech business facilities in fiscal 2020
through initiatives that include replacing traditional electric
power sources with renewable energy. We are promoting
reductions in CO2 emissions throughout the entire value chain,for example, by introducing environmentally conscious design(eco-design) to reduce power consumption during the designand development stages and during product usage.

Automotive Systems Business

Story of Value Creation

VisionHitachi’s Automotive Systems business, handled by Hitachi Astemo, became
independent from the Smart Life sector and positioned as a business alongside thefive sectors in April to promote swift decisions and a structure that achieves smooth
integration and growth strategies, produces synergies, and further accelerates thegrowth of the business.
Hitachi Astemo is an independent, leading global technology company committed
to delivering on social, environmental and economic value through the advanced
automotive and motorcycle systems business and technologies such as electric
powertrain systems, autonomous driving (AD) and advanced driving assistancesystems (ADAS), and advanced chassis systems.

Brice Koch
President & CEO, Hitachi Astemo, Ltd.

ROIC (%)

Principal Products and Services*1 *2

Adjusted operating income ratio (%)

3.7

EBIT ratio (%)

Others1%

Powertrain & Safety
Systems Bus. Div.

6.3

4.8

50%

6.1
3.5

4.8

Motorcycle Bus. Div.

3.1

8%

Other

6%
Eur
op
e
Asia 11%

FY2020 Revenues

5%

Revenues/Overseas revenue ratio*2

11%

Sustainability

0.4

n3
pa
Ja

(0.8)

Value Creation

Results and Forecasts*1

987.5

billion yen
C hi

FY2020(Results)

N o rt h A m e ric a 2

0%Chassis Bus. Div.

41%

FY2021(Forecast)*3

On January 1, 2021, Hitachi Automotive Systems, Ltd.,
Keihin Corporation, Showa Corporation, and Nissin Kogyo
Co., Ltd., concluded a management integration to form
Hitachi Astemo, of which the name is derived from thewords “Advanced Sustainable Technologies for Mobility” anddescribes the mission of the integrated company to “provide
a safe, sustainable, and comfortable mobility life through*1 Figures from the Automotive Systems business that were formerly recorded in
the Smart Life sector have been recorded in the Automotive Systems segmentfrom fiscal 2021
*2 This was the result of a merger, from the fourth quarter of fiscal 2020, among threecompanies formerly affiliated with Honda (Keihin, Showa, and Nisshin Kogyo)*3 Announced on July 30, 2021

technologies that contribute to an advanced and sustainable
society.” The company is committed to achieving this mission
guided by its triple bottom line.
Social contribution: Improve safety, comfort and QoL with
AD/ADAS systems and advanced chassis
Environmental contribution: Contribute to a greener world
through efficient electrification technologies and products that
improve emission reductions
Economic contribution: Achieve approximately 2 trillion yen
in revenues and EBITDA of approximately 15% in fiscal 2025

Data

Vision in the 2021 Mid-term Management Plan

Governance

FY2019(Results)

987.5 billion yen/
66%

7%

1

811.6 billion yen/59%

na

1,600.0 billion yen/
68%

67

Story of Value Creation

Automotive Systems Business

As an independent and global mega-supplier, Hitachi Astemo
will continue the work of integrating companies by creating
advanced mobility solutions in its core businesses of powertrainsystems, advanced driver assistance systems, and chassis
systems for both automobiles and motorcycles. Leveraging
its expanded scale and the advanced technologies of the four
integrating companies, Hitachi Astemo will drive innovationin CASE (Connected, Autonomous, Sharing, and Electric),
an area expected to grow rapidly. Furthermore, leveraging
Hitachi, Ltd.’s global R&D and group strength, the company will
maximize its engineering resources to accelerate developmentof next-generation technologies and integrate advanced
software across systems, establishing itself as an independent
global leader in mobility solutions.
Hitachi Astemo contributes to building a sustainable society andimproving quality of life by providing world-leading advanced
mobility solutions that satisfy its customers worldwide.

Strengths of Hitachi’s Automotive Systems
Business
Hitachi Astemo has many advantages via a broad array of key
components for powertrain, ADAS, and chassis from which
it can continue to create advanced system solutions. These
include optimizing overlapping R&D resources, leveraging
the best technologies of the four integrated companies,
investing in high growth technologies, and others. Reinvestingoverlapping technologies and resources and integratingcomplementary areas will enable Hitachi Astemo to provide
faster and increasingly competitive solutions to its customers.
The company can also leverage Hitachi R&D capabilities
including the new material development, electronics, andsoftware required in advanced vehicle control systems andmake superior secure telecommunications and information
technologies, as well as digital solutions, provided throughHitachi’s Lumada and GlobalLogic.
In addition, Hitachi Astemo is the culmination of four companies
with a culture of technological excellence and employees withdeep technological and software expertise.
With its diversified footprint, customer relationships andproduct portfolio, including a substantial motorcycle business
in which Hitachi Astemo is a global leader, the company has
the scale and technological expertise to adapt to market
demands and to take a leading role in the global market for
CASE technologies.

Operating Environment
The current market is characterized by accelerated initiatives
leading toward a carbon-neutral society. Automakers are
stepping up efforts targeting CASE, especially electrification for
xEVs. Of particular note is manufacturers’ dramatic increasein R&D spending for CASE and software in recent years. The
COVID-19 pandemic has negatively affected the market inmany ways, however, one positive trend has been a growing
sense of responsibility toward the environment, which has led
to a positive trend on CASE and growing adoption of xEVs.
In this environment, Hitachi Astemo aims to outpace overallmarket growth. While the market for xEVs and ADAS-equipped
vehicles is forecast to grow over the next several years at an
average annual growth rate of 30%–32%, Hitachi Astemo istargeting medium-term sales growth of 30%–40%.
As represented by VUCA, the market environment surrounding
companies has become volatile, uncertain, complex, andambiguous. Although semiconductor supply shortages arewidely expected to persist through fiscal 2021, the company
is working to mitigate risk and alleviate this situation throughcollaboration across its global network and the supply chain
and is enlisting public-sector assistance to minimize theimpact.

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Hitachi Integrated Report 2021

Strategic ProgressComprehensive Global Coverage
Hitachi Astemo serves customers around the world through123 Group companies and approximately 140 manufacturinglocations in 27 countries. By expanding its business globally
through the integration, the company has become physicallycloser to customers in various regions.

Optimization of Investment in Line with
Changing Market Needs
Defining the components for next-generation vehicles (xEV, AD/
ADAS, advanced chassis, and next-generation motorcycles) isa core component of what is driving growth for Hitachi Astemo.
Accordingly, the company is prioritizing investment in this area.
Through integration, the company will invest its R&D expenses
in focused areas. About 300 billion yen will be newly invested inxEV-related products including R&D by fiscal 2025. In addition,
Hitachi Astemo collaborates with Hitachi, Ltd.’s R&D on a
global basis utilizing the resources and effectively allocating

A Larger Share of the Market for xEV-Related
Products

For safety in autonomous vehicles, the key technology will be
wireless software with “Over The Air (OTA)” solutions to ensurethat the software installed in an electronic control unit, the brainof the car, is always the latest version.

Transformations to Maximize the Value of
Hitachi Astemo

Data

Leading-Edge Solutions Leveraging Lumada

Software Enhancements
Hitachi Astemo is responding to the needs of automakers
around the world by applying software to products andsystems globally. The company aims to enhance its software
capability to meet the need for the software-defined vehiclesof the future.
Utilizing the software human resources of the Hitachi Group,
the company set up the Software Business Division in April
2019 to focus on the enhancement of software development
capability. In addition, Hitachi Astemo acquired seneos, aGerman automotive device software developer, in April 2020
to enhance front engineering capability for precise and efficient
software development in line with the latest common standard
software architecture and software development process
framework.
The company will also be able to capitalize on synergies
leveraging GlobalLogic engineering and software capabilities
as vehicles become defined by software.

GovernanceAs the trend toward electrification continues, the number ofvehicles equipped with ICE alone will gradually decline, but
the total number of vehicles equipped with ICE in combination
with hybrid EVs will continue to grow until 2025, and ICE is still
considered to be the largest volume for the time being. Hitachi
Astemo will continue to offer ICE technologies that are best
suited for combination with hybrid EVs, mainly based on ICE
efficiency improvement technologies, and ensure profits of theremaining suppliers in the ICE business forming an important
medium-term contribution to its profits.

Sustainability

Coping with the Decline in Internal Combustion
Engines (ICE)

Value Creation

In the xEV business domain, Hitachi Astemo has developed
inverters with reduced loss to improve power savings, as well
as more compact sizes and higher output for easier installation,
boasting more than twice the output density of other companies.
In 2019, we launched the world’s first mass production ofhigh-voltage (800 V), high-output inverters for EVs. Its motors,
which utilize the advanced analysis technology, structuraldesign, materials development, production technology, andmotor control technology that the company has cultivatedwithin the Hitachi Group, have more than 1.2 times the torqueper magnet volume of its competitors. Hitachi Astemo isaiming for the top share of the market for both motors andinverters by expanding its product lineup, developing advanced
technologies including new materials and software, andstrengthening cost competitiveness. Boosted by the integrated
companies, including the former Hitachi Automotive Systems
and the former Keihin, the company intends to maintain theNo. 1 position for motors through 2025 by expanding its sales
and to move from the No. 3
position for inverters in 2019
to No. 1 in 2025, specificallytargeting sales of morethan five million pieces by2025. By accelerating the
adoption of xEV-related
products, the company
will contribute to a carbonneutral society.

Hitachi’s OTA solution is a highly efficient and secure software
update by utilizing proprietary differential data update
technology and IT. By connecting this OTA solution to theLumada as a digital solution, it will be possible to update thesoftware based on the optimal solution derived from AI big data
analysis.
For example, the system collects and analyzes informationfrom external sensors and sensors related to vehicle motion
such as steering and braking in various driving conditionsof multiple autonomous vehicles and updates the control
software for safer autonomous driving.
In addition, Hitachi Astemo expects to further leverage thistechnology in areas such as predictive maintenance andsafety and to provide more comfortable driving, as well as
personalized services that are currently ahead of the needsof users by linking information across the vehicle components
and driver history with Lumada.

VisionR&D activities in areas such as connected solutions. There,
Hitachi Astemo is responsible for R&D on the automotive
devices side and Hitachi, Ltd., on the cloud side. To ensure
efficient use of capital and optimize investment allocation,
Hitachi Astemo established an investment strategy committee
in January 2021.

Since the business integration, achieving savings through costsynergies has been a challenge. Hitachi Astemo is addressing
this challenge, however, and by 2025 the company expects
to achieve cost synergies worth 60 billion yen and aims tomaximize value by more thoroughly integrating the personnel
and corporate cultures from previously separate companies,
promoting digital transformation, and improving its productportfolio and operations.

69

Addressing Risks and Opportunities

The business environment is changing with each passing day, for example, as a result of rapid digitalization and changes incomplex political and economic conditions worldwide. Hitachi monitors and analyzes the business environments, and basedon factors such as social issues, management resources, and our competitive superiority, undertakes risk management fromthe perspective of both further growth opportunities and responding to the risks that Hitachi should prepare for, controlling risks
while creating profit opportunities. Hitachi established the Investment Strategy Division in fiscal 2017 and the post of Chief Risk
Management Officer (CRMO) in April 2020 to better identify the risks and opportunities that could potentially affect Hitachi’sbusiness and to strengthen risk management.
From fiscal 2017, as part of efforts to achieve a sustainable society, the Executive Sustainability Committee was establishedto discuss relations between Hitachi’s business and social/environmental issues and to define the issues that Hitachi should
target as business opportunities, the negative impact that business could have on society and the environment, and necessary
countermeasures.

Transforming Hitachi into a Globally Competitive
Organization by Strengthening Risk Management
Q

Kohei Kodama
Vice President and Executive Officer, CLO, General Counsel,
CRMO (Chief Risk Management Officer), and Officer in chargeof Audit
ProfileJoined Hitachi, Ltd.’s Legal Affairs Division in 1987; in 1993, moved to theUnited States and obtained qualifications as a lawyer in the State of New
York. Served as in-house lawyer at Hitachi America in Silicon Valley for 14
years starting in 1997, gaining experience in the front lines for M&As and legal
affairs. Returned to Japan in 2011. Leads legal affairs and risk management
reforms on a global level.

70

Hitachi Integrated Report 2021

Please tell us about the way of managing
risks that will be required in the future
and the role of the CRMO.

Today’s world is often described using the term VUCA, whichrefers to volatility, uncertainty, complexity, and ambiguity. A
variety of risks and compliance issues are coming to light,
for example, in the context of environmental issues andhuman rights issues. Amid deepening discussions aboutstakeholder capitalism, it has become extremely important
to coordinate the interests that arise among shareholders
and other stakeholders. In this context, to operate businessand compete in the global arena, we need to put in placeframeworks that enable us to identify risks and to respondto those risks. I believe that to increase the effectiveness ofrisk management in the context of corporate management,
it is important to strengthen risk management from threeperspectives: compliance, which is related to violations oflaws and regulations; business risk management, which is
directly related to the operations of each business unit; andcrisis management, which is examined from a company-wide
perspective, including human rights and geopolitical risks.
Based on my experience working in the United States, I got avery real sense that legal affairs, risk management, and auditing
functions are central to business and that promoting not onlyrisk hedging but also appropriate risk-taking means competingin the global arena based on global standards. I feel that myrole is to leverage this experience in transforming Hitachi’s past
approaches to risk management and leading in the creation of
appropriate risk management frameworks.

Hitachi’s Risk Management

Board of Directors
Senior Executive Committee
Monitoring/Management

Investments
and lending• Enhance individual
investment andbusiness evaluation
criteria

P.72

Ascertain and respondto risks affecting society
and the environment,
including climatechange and humanrights

P.74 , P.79

Information
security• Promote information
security governance*• Promote collaborative
creation by fostering
a security ecosystem

P.77

Occupational
health and safety Quality assurance

Compliance• Develop
countermeasures toprevent work-related
accidents

Implement quality
assurance activities fromthe perspectives of“organization andmanagement,”“technology,” and“human resources” inevery process—from
product planning anddevelopment to design,
manufacturing, delivery,
and maintenance.

To improve theeffectiveness andefficiency offrameworks, implementbalanced measures in
keeping with the level ofrisk andconfirm/improve
effectiveness based onmonitoring and acentralized Group-widereporting system

P.78

P.80

P.81

• Rebuild a culture ofsafety and establish asafe workplace

See the Sustainability Report

Major Risks and Opportunities P.73

Business
Continuity Plan
(BCP)
• Establish and maintain
BCP systems as adisaster/hazard
countermeasure• Procure BCPs

Business risks• Implement systematic
risk assessments andrisk responses• Strengthen project
management• Formulate BCPs atmajor Hitachi facilities

Value Creation• Strengthen themonitoring oflarge-scale M&A andother projects

Social andenvironmental
issuesVisionImplement risk management to strengthen businessand ensure business continuity

https://www.hitachi.com/sustainability/download/index.html*Information security governance supports corporate governance by building and implementing an organization’s internal control mechanisms related to information security

Sustainability

Q

What is your goal as CRMO?

Power Grids serve as a valuable reference in that process.
From the perspective of crisis management, we monitor risk
exposure for Hitachi’s various businesses in each country
and region, identifying the risk factors in those countries andregions, including geopolitical risks, human rights issues,
religion, culture, and public order. We pick up on signs ofpotential crises and study and inspect countermeasures.
This represents a huge transformation, but we are promoting
the transition to a global standard ERM structure with a view
toward the next Mid-term Management Plan. ERM has no “final
form.” Business itself changes every day. Even after you have
put a structure in place, you need to constantly refine ERM
frameworks and structures in line with business conditions.

Governance
Data

My ultimate goal is to create a risk management structurethat will contribute to transforming Hitachi into a true global
leader. In terms of compliance, in October 2020, David
Karas, who is from the United States, was appointed to theposition of Chief Compliance Officer (CCO), which I heldfrom 2018. In that capacity, he promotes strategic changes
in compliance throughout the Hitachi Group as a whole. In
fiscal 2020, we launched The One Hitachi Compliance Projectin earnest to unify compliance programs within the Group,
and we introduced a uniform compliance program at about
900 consolidated subsidiaries worldwide. We conductedcompliance training with uniform content in more than adozen languages, and in terms of internal reporting system,
we created a central Group-wide reporting system using athird-party vendor that can handle reporting in 80 languages.
Starting from fiscal 2021, we are verifying whether this program
has been implemented accordingly and whether the program
works in practice. CCO David Karas and I have been working
together in developing this concept over many years, and weare now steadily putting it into practice.
As the next step, I am currently supervising activities aimed
at building a full-scale enterprise risk management (ERM)
structure. Hitachi is involved in a wide range of businesses, so
we need to establish a systematic processes in each business
unit to identify the risks that prevent Hitachi from achieving
its business objectives, evaluate the impact of those risks,and plan and execute appropriate risk responses. The global
standard practices applied at companies such as Hitachi ABB

71

Addressing Risks and Opportunities

Investment Risks and Opportunities
To accelerate the global Social Innovation Business amid
structural changes and increasing uncertainty in the world
economy, it is increasingly important to understand investment
risks and opportunities (e.g., M&A and orders for projects) andto take appropriate measures.
As shown in the flowchart below, regarding individual
investment decisions (e.g., execution, business plan changes,
and disposals), under the ultimate authority of the Board of
Directors and depending on the scale and content of the
projects, Hitachi delegates authority to the Senior Executive
Committee (which, in principle, meets twice per month) andrespective business units to facilitate flexible and appropriate
decision-making. In addition, regarding important mattersto be deliberated by the Senior Executive Committee, prior
to deliberations, discussions are held with the Investment
Strategy Committee*1 advisory body to confirm and review not
only the perspective of economic value in terms of cash flow
and the profitability of projects but also the impact on social

value and environmental value. The findings, including pros andcons, are reported to Senior Executive Committee members,
including the President.
After making an investment, Hitachi regularly monitors thebusiness objectives and achievement status of the project,considering changes in the external environment. In principle,
each business unit ensures flexibility, but the Headquarters
is also involved depending on the level of importance. Also,
regarding changes in business plans and the disposal orreorganization of important investment targets, discussions areheld by the Senior Executive Committee as in the execution
stage. For investment targets of which business is notprogressing as planned, Hitachi established a framework
to deliberate on the pros and cons of continuing business,
including withdrawal, to improve capital efficiency.

Post-Investment Flowchart
Monitoring by business unit

* Investment Strategy Committee: Consists of 13 members from the financedepartment and other relevant corporate divisions (as of May 31, 2021), including
the Executive Officers in charge of Investment Strategy and Management Strategy
as chairman and vice chairman.

Monitoring by Headquarters
Contravention of specified conditions

Investment Execution Flowchart
Business Unit (BU)
management meeting
Investment Strategy
Committee

ReportClarify project risk factors, identify
important issues, report findings,
including project pros and cons

Senior Executive
Committee

Board of Directors

Business withdrawal, sale or continuation
determined by business unit

BU CEO or Executive
Vice President
approval

Investment Strategy
Committee

CEO or President
approval(important projects)
Board of Directors
discussion(particularly important
projects)

ReportSenior Executive Committee
Business withdrawal, sale or continuation

Through the above process, Hitachi will further strengthen
asset profitability and risk tolerance while ascertaining risks
before and after investments are made.

Quantitative Understanding of Risks
Hitachi calculates the maximum risk (Value at Risk) assumed bystatistical methods according to the type of assets held on theGroup’s consolidated balance sheet.
Considering total consolidated net assets and other factors,
we visualize the surplus capacity of growth investments tomonitor growth opportunities and ensure that risks are notexcessively unbalanced compared to Hitachi’s consolidated
management strength.
In addition, by analyzing risk conditions in each region andsector and the outlook for future trends, Hitachi gains aquantitative understanding of risk concentrations in specificregions and sectors in comparison with profitability.

Responding to Increasingly Complex and Challenging Risks
Hitachi conducts business activities in a variety of industries
throughout the world and therefore needs to take a multifaceted
approach to managing the business risks that prevent theorganization from achieving its business objectives. To
systematically identify, evaluate, and manage risks, while taking
into account the effects of reorganizing the business portfolio,
Hitachi is rebuilding Group-wide risk management frameworks
and putting in place more systematic processes, using global
standard practices at Hitachi ABB Power Grids as a reference.

By further enhancing risk management, we will strengthen
our capability of responding to different risks in each businessand at the same time gain a comprehensive and integrated
understanding of those risks and put in place measures inadvance to better achieve the organization’s goals.
Following is an outline of the main risks and opportunities. This
list assumes that the content was reasonable at the time thisreport was issued.

For further details, please refer to the Annual Securities Report (The 152nd Business Term).

72

Hitachi Integrated Report 2021

https://www.hitachi.com/IR-e/library/stock/hit_sr_fy2020_4_en.pdf

Major Risks and Opportunities
Major risk factors

Details on risks and opportunities• Hedging exchange rate/interest fluctuation risks• Decline in sales of products and services in yen, and increased • Promoting local production/local consumption strategies for products and services
costs of raw material and parts purchasing• Sell-off of cross-shareholdings• Revaluation loss due to decline in value of inventory assets
P.46 Reinforce Management System to Improve Profitability• Increasing capital procurement costs
P.50 CFO Message• Changes in fair value due to declining value of stockholdings
Risks

Geopolitical risks• Effects on business from political, economic, and social trends
in countries and regions worldwide
Risks

Raw material/
parts procurement

Company actions

Risks• Regularly monitor global political and economic conditions, analyze effects on business, and implement
Group-wide responses• Build close relationships with multiple suppliers• Use and strengthen Group-wide procurement functions• Create business continuity plans (BCPs) to strengthen responses to risks of business stoppages• Have suppliers conduct self-inspections and audits and promote understanding to prevent violations oflaws and regulations
P.79 Value Chain Responsibilities

Value Creation• Raw material shortages and manufacturing cost increases
resulting from fluctuations in prices/supply and demand• Negative effects on production activities• Damage to reputation caused by violations of laws andregulations, e.g., human rights violations by suppliers

VisionMarket risks(Changes inexchange rates,
capital procurement
interest, and stock
prices)Risks

Intensifying
competition andrapid technology
innovations• Reduced competitiveness due to commoditization and cost
reductions in cutting-edge products, systems, and services• Reduced competitiveness when cutting-edge technologies are
not developed or applied in products and services on schedule
Opportunities• Secure growth opportunities by developing innovativetechnologies
Risks

M&As and receipt
of orders for large
projects• Increased integration costs from M&As and loss of intangible
assets including goodwill• Increased costs on large-scale projects
Opportunities

Risks

Secure talent• Loss of growth opportunities due to intensifying competition in
recruiting and securing outstanding talent in the digital field
Opportunities• Strengthen competitiveness by securing and fostering
outstanding talent• Conduct analyses and discussions from various perspectives at meetings of the Investment Strategy Committee,
Senior Executive Committee, Board of Directors, and Auditing Committee, e.g., regarding trends in markets,competitors, and technologies, as well as strategies, acquisition prices, PMI processes, and potential risks• Monitor investment results • Manage project risks, including phase gate management by business units
P.70 Addressing Risks and Opportunities
P.82 Corporate Governance

Sustainability• Build growth platforms by securing new management
resources• Expand digital solutions using Lumada• Increase added value of products and services through co-creation with customers• Create value through open innovations and the formation of ecosystems• Form innovation ecosystems
P.28 Expand Revenues by Accelerating the Social Innovation BusinessP.36 Enhance Global Competitiveness• Expand direct hiring of digital talent• Build comfortable work environments for diverse talent• Create common HR systems worldwide• Use learning management systems and implement in-house training programs that are common
throughout the Group worldwide
P.28 Expand Revenues by Accelerating the Social Innovation BusinessP.42 Enhance Global CompetitivenessOccupational Healthand Safety• At Safety Strategy Promotion Meetings, create plans and targets and continuously review the status of
improvements• Deterioration in work efficiency and loss of trust due to inability • Support improvement activities at overseas sites and other workplaces where major accidents andincidents have arisen
to put in place work environments where employees can work
• Establish contact points for remote consultations with occupational physicianssafely and with peace of mind
P.78 Occupational Health and Safety, Employee HealthCompliance

Risks• Strengthen structures for promoting activities based on the Hitachi Group Codes of Conduct and the Hitachi• Loss of trust, limitations on business activities and increases inGroup Compliance Program (HGCP), and implement these structures worldwide
related costs due to behaviors that deviate from international• Integrate, unify, and enhance internal reporting systems throughout the entire Group
ethics and codes of conduct in relation to bribery, competition
P.81 Compliancelaws, export management, and taxation

Risks

Product quality andresponsibility• Indemnity liability and loss of sales capabilities due to declining
quality and defects resulting from increasingly complex andadvanced products and services and diversification of suppliers
Risks

Opportunities• Increasing demand for solutions aimed at reducing risks• Strengthen QA structures • Implement accident prevention activities• Ensure compliance with technology laws and regulations• Ensure thorough quality risk assessments • Provide training in responses in the event of incidents
involving quality, trust, and product-related accidents
P.80 Quality Assurance• Activities targeting carbon neutrality in “Hitachi Environmental Innovation 2050” long-term
environmental goals • Analyze risks and opportunities based on climate change scenarios, andrespond based on results • Expand environment-related business• Create BCPs to strengthen responses to risks of business stoppages• Create and implement effective infection countermeasures
P.34 Creation of Social and Environmental Value
P.74 Response to Climate-related Risks and Opportunities

Data

Climate change,
large-scaledisasters, infections(COVID-19)• Delays or suspension in business activities ranging fromproduction to shipment and sales• Decline in product/service demand and confusion in supply chains• Increasingly serious natural disasters resulting from climatechangeGovernance

Risks

Risks

Information security• Interruption of operations or information leaks resulting fromcyberattacks• Information leaks resulting from expansion of remote working
Opportunities• Increase profit opportunities resulting from increased demand
for security measures• Build cyber monitoring environments that incorporate the latest technologies• Implement information security training, and ensure thorough auditing and inspections• Confirm and audit the status of information security among suppliers• Strengthen development of technologies and products suited to digital environments
P.77 Promoting Information Security73Response to Climate-related Risks and Opportunities
Climate-related Financial Information Disclosure (Based on TCFD Recommendations)

In June 2018, Hitachi announced its endorsement of the recommendations by the Financial Stability Board (FSB)’s Task
Force on Climate-related Financial Disclosures (TCFD). The TCFD calls for disclosures sought by investors, such as how
businesses assess climate-related issues, the short-, medium-, and long-term impact of climate change on corporate value, theidentification of climate-related risks and opportunities, the metrics and targets to assess progress, and how the results of theseassessments are reflected in corporate management.

Governance
Hitachi sees climate change and other environmental issues
as important management issues. Reports on Environmental
Innovation 2050 (Hitachi’s long-term environmental targets,
which include targets for reducing CO 2 emissions) were
published after being reported to the Board of Directors: when
the targets were formulated in fiscal 2016 and when the targets
were revised in fiscal 2021.
The Executive Sustainability Committee, chaired by the
executive chairman and CEO and staffed by heads of corporate

divisions and business units, meets twice a year to discuss andreach decisions on important environment-related policies andmeasures including those in response to climate change, andit sets the stage for implementing those measures. In addition,
the Audit Committee of independent directors conducts anaudit of sustainability-related operations once a year andreceives reports on important climate-related issues from thedirectors in charge of those items.

Strategy
We are responding to climate change by fulfilling our
responsibilities as a global company by helping to achievea decarbonized society. Taking note of the CO2 reductions
required throughout the world, we established long-term
environmental targets called Hitachi Environmental Innovation
2050 under our Environmental Vision.
Moreover, in fiscal 2020 we revised our targets to even more
ambitious levels: To help limit the global temperature increase
to within 1.5°C, we declared that we would achieve carbon
neutrality at Hitachi factories and offices by fiscal 2030, andin fiscal 2021 we revised our target again to achieve carbon
neutrality in our value chain by fiscal 2050.

Climate-related Risks
As for climate-related business risks, we have followed the
TCFD’s classification in considering (1) risks related to thetransition to a decarbonized economy arising mainly in thedevelopment of the 1.5°C scenario* (changed from theprevious 2°C scenario due to the importance of achieving
a decarbonized society) and (2) risks related to the physicalimpacts of climate change arising in the event of the 4°C
scenario,* which assumes that efforts to reduce global CO2
emissions have failed. Our assessments of climate changerisks and opportunities are also categorized according to timespan, namely, short term (three years from fiscal 2019 to 2021),
medium term (through fiscal 2030), and long term (throughfiscal 2050).
*Our assessments are based on the temperature increase scenarios contained in
the Fifth Assessment Report, published in 2014 by the Intergovernmental Panelon Climate Change (IPCC), and the Special 1.5°C Report published in 2018.
The 1.5°C scenario assumes that the increase in global average temperaturesfrom preindustrial levels is kept below 1.5°C at the end of the 21st century. The
4°C scenario sees global temperatures rising by approximately 4°C compared topreindustrial levels.

1. Risks related to the transition to a decarbonized economy (applying mostly to the 1.5°C scenario)
Category
Policy and legal

Major risks
Increased business costs from the introduction of carbon
taxes, fuel/energy consumption taxes, emission trading
systems, and other measures

Time span

Main initiatives

Short to long term

• Avoid or mitigate increases in business costs, such as from carbon taxes, byfurther enhancing production and transport efficiency and promoting the use ofnon- or low-carbon energy sources

Technology

Loss of sales opportunities due to delays in technology
development for products and services

Medium to long term

• Contribute to reducing CO2 emissions by developing and marketing innovative
products and services that lead to the achievement of long-term environmental
targets and expanding the decarbonization business• Promote the development of low-carbon products by implementing
Environmentally Conscious Design Assessments when designing products andservices

Market andreputation

Impact on sales due to changes in market values orassessment of our approach to climate issues

Medium to long term

• Given growing market concerns about climate change and investor
expectations for companies to play more active roles, we revised our long-term
environmental targets called Hitachi Environmental Innovation 2050 by setting
the goal of becoming carbon neutral

2. Risks related to the physical impacts of climate change (4°C scenario)
Category
Acute and chronic
physical risks

74

Major risks
Climate-related risks to business continuity including increased
severity of typhoons, floods, and droughts (acute risks), as wellas rising sea levels and chronic heat waves (chronic risks)

Hitachi Integrated Report 2021

Time span

Main initiatives

Short to long term

• Considering the possibility of flood damage when deciding on the location or
equipment layout of a new plant. Measures tailored to the water risks of eachmanufacturing site will be strengthened in the future based on the results of awater risk assessment now being conductedClimate-related Opportunities

Category

Main initiatives

Products/
services andmarkets

Increased corporate value and revenue fromexpanded sales of products and services with
innovative technology that can contributeto the mitigation and adaptation of climatechange• Expand business areas that contribute to decarbonization• Promote decarbonized solutions and services through collaborative initiatives
with customers• Focus on the fields of energy, mobility, and industry to promote greater utilizationof digital technology (Green by Digital) and develop products that offer worldclass efficiency

Resilience

Provision of solutions to address climaterelated natural disasters• Provide disaster prevention solutions such as high-performance firefighting
command systems• Provide construction equipment that enables quicker recoveries from disasters

Value Creation

Major opportunities

VisionCO2 emissions during the use of our products and services by our customers account for a large part of CO2 emissions in our value
chain. For this reason, developing and providing products and services that emit zero or little CO2 during their use will help meetsociety’s demands for reduced emissions. This represents a significant business opportunity for Hitachi in the short, medium, andlong term.

Responding to Climate Scenario Risks and Opportunities for Each Business
Hitachi operates a broad array of businesses with each business having its own set of risks and opportunities. We therefore selectedbusinesses that have a relatively high likelihood of being affected by climate change and examined the business impact of andresponses to the 1.5°C and 4°C scenarios.

Responses to 1.5°C and 4°C scenarios in Hitachi’s businesses (excerpts)
Target businesses

Business environment
Global demand for transport systems
that emit less CO2 per distance covered
will grow with tighter CO2 emission
regulations in each country and region.

Business environment
Global demand for electricity
generated from renewable energy,
nuclear power, and other non-fossil
sources will grow with tighter CO2
emission regulations in each country
and region. Power networks will
increasingly accommodate naturalenergy produced through distributed
generation.

Business environment
Demand for energy-saving, high-efficiency
IT solutions will grow with tighter CO2
emission regulations in each country
and region. There is also rapidly growing
demand for the construction of related
systems; for example, data centers that
respond to growth in finance-related
businesses, as illustrated by the issuing ofgreen bonds and investments and loans
targeting the decarbonization business.

Business environment
Demand for easy-to-use electricpowered transport will gradually
increase because energy regulations
are minimal. Damage from typhoons,floods, and other natural disasters
caused by climate change will rise
sharply.

Business environment
The cost competitiveness of non-fossil
energy will increase, and demand forrenewable, nuclear, and other nonfossil energy will increase gradually as
the expansion of energy consumption
pushes up the price of fossil fuels.
Natural disasters caused by climatechange will rise sharply.

Business environment
Demand for new, high-efficiency
technology will expand as more
redundant IT systems are introduced
in response to natural disaster
BCPs, resulting in increased energy
consumption. There will also be increased
demand for the construction of social andpublic systems to reduce damage fromnatural disasters.

Responses to business risks underthe 1.5°C and 4°C scenarios• Continue to strengthen the railway
business as global demand forrailways is expected to increase undereither scenario.
• Given the increasing frequency ofnatural disasters, take risk aversion
into account when deciding thelocation and equipment layout of anew plant.

Responses to business risks underthe 1.5°C and 4°C scenarios• Continue to enhance the response to
relevant markets in view of expected
higher demand for non-fossil energy
under either scenario.
• Given the increasing frequencyof natural disasters, develop
technologies for disaster-resilient
renewable energy systems
and disruption-resistant powertransmission/distribution systems.

Responses to business risks under the
1.5°C and 4°C scenarios• Continue to develop innovative digitaltechnologies, nurture necessary humancapital, and enhance digital service
solutions that generate new value inview of the expected growth in demandfor digital services and the subsequent
market expansion under either scenario.
• Given the increasing frequency ofnatural disasters, strengthen our ability
to respond to business disruption risks
in accordance with our BCPs.

Data

Responses tofuture businessrisks(Business
opportunities)

IT systems

GovernanceThe businessenvironment
under the 4°C
scenario

Power generation and power grids

Sustainability

The businessenvironment
under the 1.5°C
scenario

Railway systems

Continues on the next page75

Response to Climate-related Risks and Opportunities

Climate-related Financial Information Disclosure (Based on TCFD Recommendations)

Responses to 1.5°C and 4°C scenarios in Hitachi’s businesses (excerpts)
Target businesses

The businessenvironment underthe 1.5°C scenario

The businessenvironment underthe 4°C scenario

Responses to futurebusiness risks(Business
opportunities)

Industrial equipment

Automotive systems

Construction machinery

Business environment
Global demand for highly energy-efficient industrial
products will grow with tighter CO2 emission
regulations in each country and region.
There is a risk that competitiveness will decline
if there are delays in the development of highefficiency, low-loss products.

Business environment
Electric vehicles will rapidly gain popularity withtighter laws and regulations on fuel efficiency
and environmental performance regulations
and increases in fossil fuel prices. Markets foralternative non-fossil technologies such as hydrogenand biofuel vehicles will expand. The numberof countries and regions with near zero sales ofinternal combustion engine vehicles will increase.

Business environment
Demand for electric and carbon-free fuel construction
machinery will grow with tighter laws and regulations
on the use of fossil fuels. Environmental regulations
intended to reduce environmental impact other thanCO2 emissions (e.g., air and noise pollution) will also
grow tighter in urban areas.

Business environment
Typhoons, floods, and other natural disasters
caused by climate change will rise sharply.
There is a risk of increased damages to production
facilities from natural disasters. There are also
opportunities, for example, demand for remotecontrol in response to natural disasters.

Business environment
Fuel efficiency laws and regulations will remain lax
globally, and internal combustion engine vehicles
will remain a major mode of transport. The modal
shift will be slow, as conventional automobiles andmotorcycles will remain predominant. Typhoons,floods, and other natural disasters caused byclimate change will rise sharply.

Business environment
Natural disasters caused by climate change will rise
sharply, boosting demand for construction machineryto support speedy and safe disaster recovery.

Responses to business risks under the 1.5°C
and 4°C scenarios• Under either scenario, enhance development ofenergy-saving, high-efficiency products that use
IoT technology. Focus particularly on expanding
connected products with communication functions.
Compact, lighter, high-efficiency, low-loss products
can also help reduce CO2 emissions.
• Given the increasing frequency of natural disasters,
take risk aversion into account when deciding thelocation and equipment layout of a new plant.

Responses to business risks under the 1.5°C
scenario• Promote further R&D targeting electrification
technology and other alternative technologies toenhance the response to new markets such as
electric vehicles.

Responses to business risks under the 1.5°C
scenario• Differentiate by expanding the development ofdecarbonized technologies such as those for electricand hydrogen vehicles. Create decarbonized products
by ascertaining latent market needs and acceleratingproduct development.
• Ensure the rapid provision of optimal solutions forprevention/mitigation and rapid response to disasters
as well as recovery and reconstruction.
• Build a global production and procurement system
to prepare for disasters. Enhance BCP and improvethe effectiveness of business continuity management(BCM) for the entire supply chain.

Responses to business risks under the 4°C
scenario• Promote R&D and product development in existing
technologies, including internal combustion engines,
to not only improve energy efficiency but also
increase value in areas other than environmental
value, such as safety, security, and comfort.

Notes:
1. The above table has been abridged. For a full discussion of the risks and opportunities under each scenario and detailed financial information, refer to the Hitachi Sustainability Report 2021
2. The above scenario analyses are not future projections but rather attempts to examine our resilience to climate change. How the future unfolds could be quite different from any of these scenarios

We believe that by paying close attention to market trends and developing our business flexibly and strategically,
we have high climate resilience in the medium to long term under either the 1.5°C or 4°C scenario.

Risk Management
The Hitachi Group evaluates and monitors climate-relatedrisks for each business unit and Group company as part of aprocess of assessing risks and opportunities in accordancewith the Environmental Action Plan, which is updated every
three years. The results are tabulated by the Sustainability
Promotion Division of Hitachi, Ltd., and their importance ischecked at Sustainability Promotion Meetings. Those risks
and opportunities perceived as being particularly important
for the Group as a whole are deliberated by the Executive
Sustainability Committee, chaired by the Executive Chairman
and CEO of Hitachi, Ltd.

Metrics and Targets
Our environmental activities are managed through theEnvironmental Action Plan, for which the metrics and targets
are updated every three years, including those to measure andmanage climate-related risks and opportunities.
We use the reduction rate of CO2 emissions per unit comparedwith fiscal 2010 to set targets and monitor progress across ourmany Group products and services in the value chain. Under
the current 2021 Environmental Action Plan (covering fiscal
2019–2021), we set and monitor progress for annual target
reduction rates of CO2 emissions per unit compared with fiscal
2010 for each business unit and Group company.
As part of Hitachi’s climate change countermeasures, to76

Hitachi Integrated Report 2021

advance CO2 reductions during the use of sold products andservices, we set targets and monitor the progress of reducing
CO2 emissions per unit. In other words, we focus on setting
metrics that provide customers and society with products andservices that emit less CO2. At the same time, we will try to not
only reduce per unit emissions but also total CO2 emissions
from our business sites (factories and offices).
Items for “Climate-related Information Disclosure (Based on
TCFD Recommendations)” are included in their entirety in Hitachi
Sustainability Report 2021. Please refer to that document for
further information.
https://www.hitachi.com/sustainability/download/index.html

Promoting Information Security

See page 180 of our Sustainability Report for detailed information.
https://www.hitachi.com/sustainability/download/index.html

Education on Information Security

Hitachi has created the Global Information Security
Administration Rules, which conform to the international
ISO/IEC 27001 standard, and is promoting compliancewith the regulations in Special Publication 800-171 by the
National Institute of Standards and Technology (NIST) of the
Department of Commerce in the United States. These rules are
implemented globally from the headquarters of Hitachi, Ltd.,and other Group companies. We are also actively promoting
the use of shared security services and related support for
information security provided by regional headquarters.
Policies and procedures determined by the Information
Security Committee are then reinforced by the Information
Security Promotion Council and other bodies to ensure
adoption in the workplace. As Hitachi promoted new work
styles based on telecommuting, vulnerabilities associated with
employee security awareness become a greater risk in fiscal
2020. In addition to IT-based security measures, we are taking
an employee-centered approach to raise security awarenessamong our employees.
Our Security Operation Center (SOC) monitors security on around-the-clock basis so that global-scale cyberattacks can bedetected and countermeasures initiated right away. To counter
this risk, in fiscal 2020 we began building a cyber monitoring
environment that always uses the latest technology.

Hitachi holds e-learning programs on information security andpersonal information protection for all executive officers andemployees every year. We offer a variety of courses that havedifferent goals and are tailored to different target audiences.
We also implement simulation training to educate employees
about phishing and other cyberattacks. Employees are sent
deceptive e-mail as phishing simulation to heighten theirawareness of security through direct experience.

The Hitachi Group has developed its approach to security
based on the “Plan-Do-Check-Act” (PDCA) cycle for its
information security management system. We conduct annual
information security and personal information protection audits
at all Group companies and business units. The presidentof Hitachi, Ltd., appoints audit supervisors to conduct
independent audits, and we ensure the fairness and objectivityof auditors. There are 153 Hitachi Group companies in Japan,
including Hitachi, Ltd., that conduct audits in the same way
as Hitachi, Ltd., and all results are subject to confirmation. For
Hitachi Group companies outside Japan, we use a common
global self-check approach to ensure Group-wide auditing
and inspections. All business units conduct annual self-checks
using Confirmation of Personal Information Protection andInformation Security Management. We also conduct monthly
Confirmation of Personal Information Protection Management
at the 733 operations (as of March 2021) that handle important
personal information.

Governance
Data

Hitachi takes the following IT steps to prevent information leaks:
encrypting devices; using thin clients; employing electronic
document access control and expiration processing software;
maintaining ID management and access control by building
an authentication infrastructure; and filtering e-mails andwebsites. We are also enhancing various IT measures, such asincorporating an in-depth defense strategy, in response to therecent spate of phishing and other cyberattacks. To prevent
leaks from our suppliers, we review and confirm supplierinformation security measures based on information security
requirements outlined by Hitachi. We also provide supplierswith tools and security education materials for checking
business information on supplier-side devices. In addition, we
require suppliers to check and remove business informationfrom personal computers.

Thorough Information Security Audits
and Inspections

Sustainability

Preventing Information Leaks

Value Creation

Information Security Management

VisionHitachi considers information security governance as one of our top management priorities. Information security governanceminimizes the risk of business disruption, including information leaks and operational stoppages, due to cyberattacks. As such,
we take a dual approach to cybersecurity: value creation and risk management. We outline Information Security Policy from theperspective of cybersecurity risk management and have established the Information Security Committee, which is headed by
our Chief Information Security Officer (CISO). This committee outlines policy and leads initiatives related to information security
and personal information protection.

77

Occupational Health and SafetySeepage 114 of our Sustainability Report for detailed information.
https://www.hitachi.com/sustainability/download/index.html
https://www.hitachi.com/sustainability/download/index.html

Ensuring that “Health and Safety Always Comes First” is the principle underlining the Hitachi Group Health and Safety Policy,
which is shared by all Hitachi Group companies around the world. Employees work together to create healthy, safe, and secure
work environments that aim to be accident free. We share the belief that all work-related accidents can be prevented and that
we are responsible for our own health. We engage in practices to protect our health and safety and endeavor to build a culturethat promotes mutual awareness.

Establishing the Occupational Health and
Safety Management Systemcompleted by the end of the fiscal year.

The Health and Safety Officer Meeting is held and attended
by health and safety officers from each Group company andrepresentatives from each division. The members set plansand objectives for Group-wide safety strategies, review
ongoing measures to improve occupational health and safety
management systems, and share the clear commitment fromtop management to make protecting the health and safety of
employees their top priority. The Audit Committee audits theresults of Group health and safety activities, plans, and policies
every year. For critical health and safety issues, the statusof occupational health and safety management is reported
at least once a year to the Senior Executive Committee andat meetings of Group company presidents. In fiscal 2020,
the Hitachi Group advanced infrastructure development that
included information gathering toward the creation of a global
health and safety management system. We also increased
the frequency of global accident statistics reporting from once
every six months to once a month. We expanded initiatives
directly undertaken by the Safety and Health Management
Division toward improving health and safety activities at sites
outside Japan where serious accidents have occurred.

Initiatives to Improve Employee Health

Initiatives for Preventing Work-related Accidents
We have set goals of zero fatal accidents and halving lost-time
accidents across Group sites worldwide compared to 2018 by
2021. To achieve these goals, we hold the Health and Safety
Officer Meeting and conduct interviews with the departmentsin charge of safety. We also conduct training and analyze thecauses of accidents. In addition, we implemented various
measures in fiscal 2020 based on our Action Plan. Hitachi sets
and applies internal safety standards to be observed globally atmanufacturing sites with a high risk of work-related accidents.
We also advance health and safety measures tailored tothe operations of individual companies. During businessrestructuring, we share the details of the health and safety
management frameworks and initiatives of the organizations
to be merged in advance. While maintaining mutual respect
for the organizational cultures of each party, we ensure safetyas part of a smooth business launch. Hitachi conducts safety
training specific to each job title and, in fiscal 2020, we created
new safety training for executives.
Although the total number of work-related accidents is
declining, globally there were still three accidents resulting indeath in 2020. Recognizing the need to improve workplaceenvironments posing accident risks and the need for a safety
management system that also applies to contractors, in fiscal
2021 we are working to improve our responses and implement
corrections for high-risk work and facilities. This work will be

78

Hitachi Integrated Report 2021

In fiscal 2020, we expanded our efforts to address the mental
health of employees in each global region and the concerns of
employees who faced an elongated need for telecommuting
due to COVID-19. For example, in Japan we provided remotehealthcare counseling, offered tips on staying healthy whileworking from home, supported foreign employees seeking
medical services in Japan, and ensured the human rights ofinfected employees. In fiscal 2021, we have been working toincrease the support we provide the group-global employees
through more proactive measures, based on organizational
integration with the safety department.

Measures to Prevent Infectious Disease
We have been vaccinating employees against hepatitis A,
tetanus, cholera, etc. to support infectious disease prevention
during business travel outside Japan. In fiscal 2020, we ask
employees to always stay home if they have a fever or feelunwell. We have also maintained a work-at-home ratio of
70% during the state of emergency declarations in Japan.
For employees working on jobs required to maintain social
infrastructure, we implement infection prevention measuresappropriate for each job, including distributing disinfectant
spray and masks. In the event of an employee infection, we
implement measures to avoid the further spread of infection
based on guidance from administrative authorities.

Hitachi Group Global Safety Statistics(rate of occurrence*1)
120
90
60
30
0
2016
Region

North America
Latin America
Europe
India
China
Asia
Oceania
AfricaOverseas total
Japan
Global total

2017

2018

2019

2020

2016

2017

2018

2019

2020

27.65
2.33
10.70
2.07
1.59
5.43
39.07
17.26
7.76
1.57
3.95

24.33
1.62
10.82
1.44
1.53
4.41
24.41
9.93
7.42
1.85
4.22

27.96
0.44
6.08
1.44
1.46
3.34
21.94
11.76
7.43
1.64
4.20

20.76
0.57
4.78
1.63
1.17
2.63
29.07
9.72
5.78
1.53
3.45

18.98
2.12
3.09
1.07
1.12
1.55
12.95
25.37
4.90
1.34
2.89

Year

*1 Occurrence rate is the rate of workplace accidents per 1,000 directly contracted
employees (including cases without lost workdays)

Value Chain Responsibilities

See page 125, 130 of our Sustainability Report for detailed information.
https://www.hitachi.com/sustainability/download/index.html

The Hitachi Group attaches great importance to the sustainability of our value chain, and we work with our suppliers to promote
initiatives toward increasing social, environmental and economic value. To ensure the stable supply of products and services,
whenever possible we engage in preemptive measures toward ascertaining and reducing risks.

Our procurement divisions work to enhance our Group/Global
business continuity plan (BCP) to ensure incidents that do
occur do not result in the suspension of operations or do nothave a great impact on society.

In the Hitachi Group Human Rights Policy, we outline the
Hitachi approach to Human Rights Due Diligence (HRDD) andrequire appropriate education and training for employees. The
Hitachi Group has established the position of Chief Diversity& Inclusion Officer (CDIO). We also created a project team atthe Hitachi, Ltd., headquarters to promote HRDD. This teamis composed of members from the relevant divisions andoversees the preparation of manuals and other documents
needed for the evaluation and implementation of HRDD
measures. The team also works to create a structure forstrengthening human rights risk management.

Sustainable Procurement Management
Framework

Strengthening Global Partnerships for
Sustainable Procurement

In the Hitachi Group Code of Conduct, we clearly express our
firm stance against the use of child labor or forced labor either
in Group companies or along our supply chain, and we work
to reinforce awareness among our suppliers. In March 2020,
a report from the Australian Strategic Policy Institute indicatedthat one of Hitachi’s suppliers might be using Uyghur forcedlabor in China. We conducted a social compliance review via
a third party based on international standards to review the
supplier’s management system, specifically looking at how
employees were managed, given the allegations stated in thereport. As a result, there were no findings to support the forcedlabor. Through various forms of engagement, the Hitachi Groupwill continue efforts to respect the human rights of its workers,
including those employed by suppliers.

Ensuring Responsible Mineral Procurement
Governance

We have appointed regional procurement officers to oversee
local procurement activities in China, the rest of Asia, Europe,and the Americas. These officers carry out activities such as
supplier CSR audits and CSR monitoring (self-checks) andhold CSR Seminar for Suppliers in their respective regions tostrengthen our responses for sustainable procurement.

Addressing Child Labor and Forced Labor

Sustainability

Hitachi instituted the Hitachi Group Global Procurement Code.
This Code calls on Group companies and suppliers to give due
consideration to human rights, labor practices, safety, ethics,
quality, and security throughout the supply chain.
We also distribute the Hitachi Group CSR Procurement
Guidelines to our approximately 30,000 suppliers aroundthe world, engage in enlightenment activities, and require
documentation that suppliers have confirmed andunderstood these Guidelines. We reviewed the guidelines
in fiscal 2021 and produced a revision retitled the HitachiGroup Sustainable Procurement Guidelines. Accompanying
these guidelines, we also distribute the Green Procurement
Guidelines as part of our efforts toward increasing
environmental value.
To strengthen our sustainable procurement management
framework, in fiscal 2020 we redefined our management
functions and established a new Sustainable Procurement
Council in fiscal 2021.

Value Creation

Human Rights Due Diligence

VisionProcurement BCP and Promotion Framework

Hitachi works to ensure responsible mineral procurement. To
address the expansion of corporate responsibilities, in fiscal
2021 we revised and renamed our Hitachi Group Conflict
Minerals Procurement Policy as the Hitachi Group’s policy for
Responsible Supply Chain of Minerals.

Response to Technical Intern Training Program Issues

Status of CSR Procurement Measures
FY
2017

FY
2018

FY
2019

FY
2020

Periodtotal

CSR Monitoring(Self-Checks)

316

131

345

291

271

2,072*2

CSR Audits

20

18

24

19

27

176 *3

CSR Seminarfor Suppliers*1

29

65

126

59

450

741*4

*1 In fiscal 2020, CSR Seminar for Suppliers were held by webinar and e-learning insteadof face-to-face*2 Cumulative total for fiscal 2011 to fiscal 2020
*3 Cumulative total for fiscal 2012 to fiscal 2020
*4 Cumulative total for fiscal 2015 to fiscal 2020

Data

FY
2016

In 2018, the Hitachi Group received a warning from theOrganization for Technical Intern Training to correct violations
concerning the use of the Technical Intern Training Program.
In 2019, Hitachi also received orders from the Immigration
Services Agency and the Ministry of Health, Labour, andWelfare to make improvements regarding intern training. We
submitted a report to the Organization for Technical Intern
Training regarding the completion of improvements in October
2019. In March 2020, we established Group-wide policies andguidelines, and created a system of checks applied to technicalintern training. In November, we began conducting internal
audits and other measures to prevent the reoccurrence of any
violations.

Note: The Hitachi Group positions suppliers as partners with whom we engage equally toward business development. We use the term “procurement partners” when referring toour suppliers. To promote ease of searchability, as an exception we refer to our procurement partners as “suppliers” within the Integrated Report79Quality Assurance

See page 137 of our Sustainability Report for detailed information.
https://www.hitachi.com/sustainability/download/index.html

As we outline in the Hitachi Group Code of Conduct, being able to provide customers peace of mind in the use of our products
and services and being able to fulfill the specification and quality requirements of our customers are two of the things valued
most by all of us at Hitachi. Hitachi believes in prioritizing quality and reliability above all else. To embody this belief, we engage inactivities toward strengthening quality assurance for all processes and from multiple perspectives: organization and management,
technology, and human resources.

Basic Principles on Quality Assurance
Embracing the Hitachi Founding Spirit of “Harmony, Sincerity,
and Pioneering Spirit,” we adhere to “basics and ethics” and“put right and wrong before profit and loss.” In our quality
assurance activities, we value a commitment to sincerity. Our
unique practice of OCHIBO-HIROI, which means “gleaning”
in English, involves analyzing and learning from our failures tofurther develop our technologies. When an incident occurs, we
not only investigate the technical causes but also thoroughly
discuss the process, framework, and motivational causes
leading up to the occurrence, along with ways to prevent
reoccurrences, to improve our product reliability and customer
satisfaction.

Framework for Quality Assurance

80

Accident prevention activities
Hitachi believes that accident prevention is one of thetrue goals of quality assurance. Based on this belief, we
go beyond accident reoccurrence prevention to promote
activities that prevent accidents before they occur. With the
expanded use of software by our products division (embedded
software development division), we are applying the softwaredevelopment skills and reliability improvement know-how of
the solutions division to integrate software into the products
division that helps prevent accidents before they occur. We
are also building and enhancing a framework for sharing
information on quality activities and issues related to thegrowing services business.

To ensure full control over quality governance, Hitachi has
separated the quality assurance division from the manufacturing
division in every business unit and Group company, creating aframework for operations that prioritize customer safety andtrust above all. We also make quality assurance divisions
independent of business divisions and enhance the structure
for reporting to the Quality Assurance Division at our head
office. This ensures a framework for close information sharing
between all parties.

Reinforcing risk assessment
We engage in product development by prioritizing the safetyof life, health, and property as the top priority from the design
stage. We verify safety at every step, from development andproduction to sales and maintenance. We work to ensure
safety by increasing risk communication with customers
through our Guide for Preparing User Instruction Manuals, andby reducing risks through design (fundamental safety design),
protective measures (safeguards), and usage information (suchas user instruction manuals).

Quality Assurance Activities

Responding to Product Incidents

Hitachi distributes product regulations worldwide andshares information on amendment trends and enforcement
dates among Hitachi Group companies. We promote legal
compliance and make continuous improvements to thisprocess by clarifying product-specific laws (product-specificlaws map) and implementing our product compliancemanagement system. The Hitachi Group globally applies ourbasic principles of quality assurance and Quality AssuranceStandards. We receive accident reports from overseas Group
companies based on a reporting structure that is independentof the business divisions, similar to the structure that is usedin Japan, and we promote the same principles of OCHIBOHIROI. Through these activities, we promote the establishmentof the global quality assurance framework.

When a product incident occurs, the division responsible acts
swiftly to resolve the problem. In the case of a severe incident,
we promptly report to management and government agencies
in line with legal requirements and disclose the incident
information to customers on our website and through othercommunication channels. We have established a structure
for ensuring fast and appropriate action at all companies
across the Hitachi Group. In cases where we determinethat retroactive action is necessary, we notify customers via
newspaper advertising or via our website to carry out thenecessary repairs or replacement program.

Hitachi Integrated Report 2021

Quality and Reliability Education
We conduct field-specific technical lectures for engineers at
a range of levels from basic to expert. We provide technicaltraining courses for manufacturing, quality assurance, andmaintenance.

Compliance

See page 166 of our Sustainability Report for detailed information.
https://www.hitachi.com/sustainability/download/index.html

Basic Policy

Policies for preventing bribery and corrupt practices
As part of the HGCP, Hitachi established the Hitachi Group
Anti-Bribery and Anti-Corruption Policy and related regulations.
The provision or acceptance of entertainment or gifts,
donations, or provision of political capital (political contributions)by executive officers and employees must not exceed thescope permitted by anti-bribery laws and regulations and mustcomply with Hitachi’s internal rules. In addition to outlining
specific spending limits on monetary value and frequency of

Hitachi’s tax compliance approach
Hitachi ensures appropriate tax governance for the entire
Hitachi Group. We have established regulations governing all
tax-related matters and work to ensure awareness among all
employees involved in tax management (filing and paying taxes,
handling tax audits, and tax risk management). We managetransfer pricing in accordance with the OECD Transfer Pricing
Guidelines and the transfer pricing regulations of the countries
and regions in which our Group companies are located. We
also assess the applicability of the Anti-Tax Haven System.
When applicable, we ensure appropriate tax payments basedon the application of this system.

Violations of Laws and Regulation
In fiscal 2020, there were no incidents in which Hitachi wasprosecuted or penalized by the authorities. Furthermore,
Hitachi had no significant fines or nonmonetary sanctions fornoncompliance with tax laws and regulations.

Data

Major Initiatives

Export controls
Hitachi’s basic policy is to comply with global import/export
laws and ensure appropriate management. To reinforce thisbasic policy, Hitachi, Ltd., has established the Corporate
Regulations concerning Security Export Control. We carry out
strict export control practices in line with relevant laws andregulations, including screening all goods and technologies
intended for export against such factors as destination
countries and regions, as well as intended end use and end
users. Hitachi Group companies also implement export control
in accordance with relevant laws and regulations.

Governance

Hitachi has adopted a compliance reporting system that canbe used anonymously, not only by Hitachi Group employees
but also by temporary staff and business partners suchas suppliers and distributors. In fiscal 2020, we received
639 reports from all Group companies worldwide. We alsoestablished what we call the Channel to the Board of Directors.
This system allows all Hitachi, Ltd., employees to reportproblems anonymously or under their real names directly
to Hitachi directors if they discover illegal or significantly
inappropriate activities in business conducted by division
heads, executive officers, or other management personnel.
In fiscal 2020, to further strengthen the Group’s governanceand compliance, we integrated internal reporting systems
within the Group into a Group-wide system called the Hitachi
Global Compliance Hotline. The harassment consultation
service previously under the management of the human capitaldivision and the internal reporting systems independently
maintained by Group companies were integrated into the new
system.

Anti-monopoly act compliance policy
The HGCP includes the Hitachi Group Fair Competition Policy.
To promote global awareness and compliance throughout theGroup, we have created international versions of standards
concerning contact with competitors to ensure awareness ofpoints of caution related to business practices. We also clarified
the involvement of compliance departments in existing cartel
prevention monitoring and other activities (vertical relationships
with customers, channel partners, suppliers, and others).

Sustainability

Compliance Reporting Systementertainment, gifts, and other arrangements to be provided to
public officials, these regulations ban facilitation payments andrequire due diligence procedures for business partners.

Value Creation

Hitachi, Ltd., has formulated the Hitachi Group Codes ofConduct, which all executive officers and employees acrossthe Group pledge to uphold. The Codes of Conduct istranslated from Japanese into 14 languages, including English
and Chinese, and through e-learning is shared with morethan 300,000 Hitachi Group executive officers and employees
around the world. In April 2020, we established the HitachiGroup Code of Ethics and Compliance. This code supplements
the Codes of Conduct to clarify the approach to corporate
ethics and compliance that must be shared across the entire
Hitachi Group. Based on the Hitachi Group Codes of Conduct
and the Hitachi Group Code of Ethics and Compliance, weestablished the Hitachi Group Compliance Program (HGCP),
which consists of regulations and guidelines for various matterssuch as compliance with the Anti-Monopoly Act, preventing
transactions with antisocial forces and money laundering, andpreventing bribery and corruption.

VisionHitachi has established internal regulations based on widely recognized and adopted international guidelines concerning
important business practices, including bribery and corruption prevention, adherence to the Anti-Monopoly Act, and tax
compliance. We work to ensure awareness and enforcement throughout our Group. With the interpretation of regulations
and laws constantly evolving, we regularly validate and reform internal regulations to ensure our appropriate response to thedemands of society.

81Corporate Governance

Hitachi views the expansion of long-term and overall shareholder returns as an important management objective. Hitachi, Ltd.
and Hitachi Group companies maintain good relationships with a wide range of stakeholders, and we recognize that these
relationships make up an important portion of our overall corporate value. Accordingly, we are striving to establish a systemthat will facilitate the maintenance of these relationships and improve our corporate value primarily through the implementationof measures focused on promoting constructive dialogue. To advance these efforts effectively, we are working to improve ourcorporate governance by ensuring thorough separation between the oversight and execution of management, establishing aswift business execution system, and striving to achieve highly transparent management.

History of Hitachi’s Corporate Governance Reform
1999

Introduction of Objective Perspective

2012

Management Advisory Committees

Development of Corporate Governance Guidelines		Practical advice from experts in Japan and overseas
2003

Demarcation of Management Oversight and Execution
Shifted to a company with committees (currently a company
with nominating committee, etc.)
To increase management speed and improve
management transparency

2006

Enforcement of Companies Act

2010

Enhancement of Interactions with Capital Markets

Development of Guidelines for Strengthening
Governance2014

Development of Stewardship Code2015

Start of Application of Corporate Governance Code2016

Enhancement of Dissemination of Information about
Medium- to Long-term Sustainable Growth
Publication of an integrated report

Hitachi IR Day (briefing on business strategy by division) was
launched

2019

Clarification of commitment of top management of thebusiness units to the capital markets
2012

Acceleration of Global Management
Independent directors including foreign directors wereincreased

Acceleration of the Social Innovation Business across 5
Growth Fields
Executive vice presidents were placed in 5 sectors
ESG briefing session held
An independent director (chair of the Audit Committee)
and the CEO shared their remarks

Independent directors composed the majority of directors

Implementing All the Principles of the Corporate Governance CodeWe are implementing all the principles of the Corporate Governance Code.

Director Composition
Independence(ratio of Independent directors)

Independent directors
10 directors

76.9%

82

Hitachi Integrated Report 2021

Diversity(ratio of non-Japanese andfemale directors)

Directors with
Abundant Experience

The Board of Directors applies theirabundant experience and knowledge
related to the management of global
companies, legal affairs, accounting,capital markets, government agencies,
and the field of digital technology to
Non-Japanese directors
6 directors
facilitate discussions informed by awide variety of perspectives.
%
In June 2021, Helmuth Ludwig joined
the Audit Committee and Joe Harlan
2 female directors joined the Compensation Committee,(15.4% of overall director total)
enabling even more diverse discussions.

46.2

Hitachi’s Corporate Governance Framework and Its Features

General Meeting of Shareholders

VisionThe Senior Executive Committee is an advisory body to the CEO or the
President that conducts multifaceted discussions and makes careful
decisions regarding important matters that impact Hitachi, Ltd. or the HitachiGroup. As of July 2021, the Committee consisted of 11 members, including
the Executive Chairman & CEO, the President & COO, five executive vicepresidents, three senior vice presidents, and one vice president.

Senior Executive
Committee

Appointment

Executive Chairman & CEO
President & COO

Report2 Board of Directors

11

non-executive members(including 2 female members)

2 executive members

1

1

Nominating
Committee

Compensation
Committee

Audit Committee

4 directors

5 directors

6 directors*

Executive Vice Presidents andExecutive Officers/Senior Vice
Presidents and Executive
Officers/Vice Presidents andExecutive Officers

3 AuditInternal
Auditing
Office3 Report

Executive
Officer
Department
in charge

Sustainability

1

Value Creation

Appointment/
Oversight

Executive
Officer
Department
in charge

Department
in charge

Department
in charge*One standing Audit
Committee member

3 Audit

3 Audit
3 AuditIndependent

Governance

3 Report
Non-independent

Accounting Auditors

POINT 1

POINT 2

POINT 3

Transparency in Management

Independence of
the Board of Directors

Enhanced Collaboration
through Tripartite Audits

We became a company with committees(currently a company with a nominating
committee, etc.) in 2003.
We have established the Nominating Committee,
the Compensation Committee, and the Audit
Committee, which are mostly made up of, andare chaired by, independent directors. The
system we have in place to ensure transparency
in management separates the oversight andexecution of management, facilitates the full
exercise of supervisory functions, and enables
discussions and reports to be conducted
appropriately within these three committees.

We increased our number of
independent directors, including
non-Japanese directors, from 2012.
Our Board of Directors, which is chaired byan independent director, has 13 members,
including 10 independent directors, two
directors who are also serving as executive
officers, and one director who is not serving
as an executive officer. In addition, we haveestablished a system that facilitates the full
exercise of supervisory functions by maintaining
separation between the oversight and executionof management.

Data

Hitachi’s Audit Committee and internal audit
section collaborate with third-party accounting
auditors to strengthen its “Tripartite Auditing,”
which aims to increase the effectiveness ofinternal controls.

83Corporate Governance

Administrative Performance of the Board of Directors
The Board of Directors approves basic management policy for the HitachiGroup and supervises the execution of the duties of executive officers
and directors in order to sustainably enhance corporate value and theshareholders’ common interests. The basic management policy includes the
Mid-term Management Plan and annual budget compilation. The Board of
Directors focuses on strategic issues related to the basic management policy,
as well as other items to be resolved that are provided in laws, regulations,
the Articles of Incorporation, and the Board of Directors Regulations.

Within the Board of Directors, there are three statutory committees—the
Nominating Committee, the Audit Committee, and the Compensation
Committee—with independent directors accounting for the majority ofmembers of each committee. The Board of Directors meetings were held onnine days during fiscal 2020, and the attendance rate of directors at thesemeetings was 100%. The attendance rates for each independent director
were as shown in the table below. To assist with the duties of the Boardof Directors and each committee, staff who are not subject to orders andinstructions from executive officers are assigned.

Attendance at the Board of Directors Meetings Held in Fiscal 2020
Attendance/Number of days on which the meetings were held*
Name

Board of Directors

Nominating Committee

Audit Committee

Compensation Committee

Katsumi Ihara

100%

—

100%

100%

Ravi Venkatesan

100%

—

—

—

Cynthia Carroll

100%

100%

—

—

Joe Harlan

100%

—

—

—

George Buckley

100%

—

—

—

Louise Pentland

100%

—

—

—

Harufumi Mochizuki

◎100%

◎100%

100%

◎100%

Takatoshi Yamamoto

100%

—

100%

100%

Hiroaki Yoshihara

100%

100%

◎100%

—

Helmuth Ludwig

100%

—

—

—

*Number of days during term of office on which the Board of Directors meetings were held: 9; Mr. Venkatesan and Dr. Ludwig: 6
Number of days during term of office on which Nominating Committee meetings were held: 8
Number of days during term of office on which Audit Committee meetings were held: 17
Number of days during term of office on which Compensation Committee meetings were held: 4◎Indicates role as a board or committee chairperson

Description of the Three Committees’ Activities

84

Nominating Committee

Audit Committee

Compensation Committee

The Nominating Committee has the authority todetermine proposals submitted to the general
meeting of shareholders for the election anddismissal of directors. The Nominating Committee
consists of four directors, three of whom are
independent directors.
It determines director candidates and holds
preliminary hearings concerning the appointment
and dismissal of executive officers, including theCEO. In fiscal 2020, the Nominating Committee
held meetings on eight days.

The Audit Committee has the authority to audit the execution ofduties of directors and executive officers and to decide on proposals
submitted to the general meeting of shareholders for the election
and dismissal of accounting auditors. The Audit Committee currently
consists of six directors, including five independent directors and one
standing Audit Committee member.
Hiroaki Yoshihara, the chairman of the Audit Committee, has been
involved in accounting and other business practices at the KPMG
Group for many years and possesses a considerable breadth ofknowledge concerning finance and accounting.
In fiscal 2020, the Audit Committee held meetings on 17 days.

The Compensation Committee has the authority to determine remuneration
policies for directors and executive officers and remuneration for
individuals (including amounts of remuneration) based on them. Currently
composed of five directors, including four independent directors, thecommittee strives to ensure objectivity, transparency, and fairness in the
remuneration determination process.
In addition, the Compensation Committee verifies and reviews details of
the process used for determining remuneration for individuals, including
assessments concerning basic remuneration amounts, evaluations ofprogress made toward individual targets, and performance appraisals thatare tied to short-term incentive compensation.
In fiscal 2020, the Compensation Committee held meetings on four days.

Primary Activities

Primary Activities

Primary Activities

In addition to deciding upon the contents of the
proposal made concerning director appointments
at the Annual General Meeting of Shareholders,the Nominating Committee set an upper limit on
the total term of office for independent directors
and reviewed and confirmed the executive officer
system implemented in fiscal 2021. In addition, it
promoted committee-related activities including
discussions and individual interviews aimed atdeveloping candidates for future management andleadership positions.

The Audit Committee conducted activities that were focused on itspriority matters for consideration, which included the strengtheningof collaboration and the facilitation of information sharing under a“Tripartite Audit” (audit by the Audit Committee, internal audit andaudit by accounting auditors), and auditing of the establishment andoperation of internal control systems from the perspective of risk
management and validity of execution of duties. In addition, a standing
committee member worked to obtain information as needed in a timely
and accurate manner, mainly by collaborating with the Internal Auditing
Office, among other departments, and attending important internal
meetings such as the Senior Executive Committee, and facilitated
information sharing with other committee members.

The Compensation Committee determined remuneration amounts
for individual directors and executive officers in accordance withestablished policies while verifying and reviewing the processes andresults of appraisals for performance and individual targets tied to shortterm incentive compensation for executive officers. In addition, thecommittee reviewed the executive compensation system while giving due
consideration to compensation granted to managers at global companies
and the goal of sharing value with shareholders, and decided upon policies
covering remuneration for directors and executive officers in fiscal 2021.

Hitachi Integrated Report 2021

Message from the Chairman of the Nominating Committee

Building a Globally Competitive Board of
Directors and Fostering Diverse Leaders

Independent Director

The Role of the Nominating Committee

GovernanceFostering Next-Generation Leaders
Because fostering talent takes time, it’s important to selectand foster these candidates for the future early on. For thisreason, the Nominating Committee focuses on developing“Future 50” members, who are young leader candidates, whileswitching out candidate members every year. We actively
work to strengthen these candidates, for example, by giving
lectures and conducting debates on various themes. Hitachi’s
management, including the Board of Directors, increases its
capacity to respond while referring to global standards, forexample, through strict governance of various themes, anddiversity that is not limited by attributes such as gender andnationality. By expanding these types of management-levelawareness reforms to include young leader candidates, weenhance and improve next-generation leaders for Hitachi as awhole, to include a broader and deeper talent pool.

Data

Hitachi became a company with committees (currently acompany with a nominating committee, etc.) in 2003, and in2012 the number of independent directors increased, including
non-Japanese directors, as part of efforts to build a globallycompetitive management structure. A backdrop to thesechanges was a desire to transform Hitachi into a true global
leader, with overseas business accounting for more than halfof the Group’s business. Deciding on director candidates is
an important mission of the Nominating Committee, and itchooses people who are qualified to sit on a Board of Directorsthat is in line with global standards. Currently, 10 of 13 directors
are independent directors, combining global knowledge andexperience in a variety of fields, making this board ideallysuited to lead in Hitachi’s diverse management operations.
People with experience in a global corporation demonstrate
not only outstanding character but also a broad range ofknowledge and experience in management. In selecting thesecandidates, regardless of nationality, we conducted interviews
where we asked about their management philosophy andperspectives on corporate management, including aspectsof culture. At Hitachi’s actual Board of Directors meetings, wesometimes spend more than an hour discussing a single topic
in detail, and you can see lively discussions where each of theparticipants has spent time studying these topics in advance,from their own unique perspective.

Sustainability

A Board of Directors Rich in Diversity

Another mission of the Nominating Committee is appointing
the CEO. Hitachi is a huge organization, so in addition to
selecting the CEO, creating management leaders of the
future is extremely important in terms of supporting Hitachi’s
continued global growth. I have served as chairman of theNominating Committee since fiscal 2016, and in addition
to further strengthening selection and training activities, I
have worked to secure objectivity and transparency in theseprocesses. We recently appointed Dr. Kojima as president &COO, but this selection process began from the moment thathis predecessor, Dr. Higashihara, was appointed president& CEO. On the executive side, we have identified andtrained about 400 people who have the potential to take on
corporate management positions. The Nominating Committee
also participates by narrowing down candidates from theperspective of one’s track record and potential. When they are
first selected, none of these individuals has all the elements
required to be a leader. Non-Japanese can also be appointed
to top positions, but they need to have a deep understandingof Japanese culture and business practices. We provide thesecandidates with opportunities to give presentations to theNominating Committee, engage in discussions, and participate
in one-on-one meetings with committee members. We focus
on developing the qualities of these candidates, reinforcing themost essential elements, and at the same time fostering these
individuals through a process of tough assignments. Directors
outside of the Nominating Committee also conduct one-onone meetings with the candidates to foster a multifaceted
perspective.

Value Creation

At Hitachi, a “company with nominating committee, etc.,”
one role of the Nominating Committee is to support thefundamental framework of corporate governance. Specifically,
it plays an important role in securing the effectiveness of theBoard of Directors’ management supervision and decisionmaking functions by deciding on the content of agenda
items for submission at the General Meeting of Shareholders
concerning the appointment and dismissal of executive
officers and submitting proposals to the Board of Directors
on appointments and dismissals to the position of CEO
and on the makeup of the Nominating, Compensation, andAudit committees. It also selects and trains CEO successor
candidates. Since 2016, independent directors have served
as the committee chairman, and the Nominating Committee
has comprised three independent directors and one executive
officer, with non-Japanese and female members included toensure diversity.

VisionHarufumi Mochizuki

Fostering Management Leaders, including the
Next CEO and Successor Candidates

85

Message from the Chairman of the Compensation Committee

Establishing Attractive, Global Compensation Structures inLine with the Viewpoint of Stakeholders

Harufumi Mochizuki
Independent Director

The Role of the Compensation Committee
I have been a member of Hitachi’s Board of Directors since2012, and I have been deeply involved with the Compensation
Committee since 2014 in the capacity of chairman. During
this time, I feel that the role of the committee has evolved interms of its responsibility for Hitachi’s governance. Of course,
the basic form of the committee’s activities is to guarantee
objectivity, transparency, and fairness in processes related
to deciding director compensation. The goal, however, is toensure a good balance in the distribution of corporate profits
among shareholders and other stakeholders.
During the time that I have been here, Hitachi has shifted thefocus of its strategic bases even more from Japan to othercountries, implementing management strategies aimed attransforming the company into a global leader. By ensuringthat the compensation structure is aligned with standards
appropriate to a global corporation, we have adopted a basic
policy of securing management talent with the qualities that will
increase corporate value in the global market.

Building a Compensation Structure that Is
Attractive Even from a Global Perspective
Every country has different compensation frameworks
and different taxation systems regarding stock options.
When we designed our compensation system, we started
by introducing basic compensation, performance-based
compensation as a short-term incentive, and a stock
option system as a medium- to long-term incentive.
This includes individual evaluations tied to performance.

The CEO assigns roles to the various executives, andafter multiple meetings individual goals are set througha mutual consensus based on the job description.
The Compensation Committee conducts fair and strict
evaluations through a process of interim and year-end
reviews, and then the CEO decides on the final evaluation.
We referenced the component ratios for managementcompensation at major global corporations and decided
on a 1:1:1 balance of basic compensation, short-term
incentives, and medium- to long-term incentives. This
compensation design has been in place in its current form
since 2019.
In fiscal 2019, we introduced the shares of restricted
stock system to replace the conventional stock options as
medium- to long-term incentive compensation. By having
directors own stock from the time that they are appointed,
we have built a framework that develops a deeper senseof shared values with shareholders and gives directors
the incentive to continuously increase corporate value
and undertake management from a medium- to longterm perspective. In the case of non-Japanese directors,
given that systems differ in each country, we conductedcareful and extensive studies and eventually introduced
a performance-based compensation system as a shortterm incentive; then, in fiscal 2020, we decided to apply
the restricted share compensation unit system as a
medium- to long-term incentive.
Moving forward, by incorporating opinions from diverse
perspectives, we will further increase effectiveness interms of operating the compensation system, including
performance evaluations. As part of these efforts, Joe
Harlan joined the Compensation Committee in June 2021,
bringing with him extensive knowledge and experience
with global corporations.

Introducing an Evaluation System that
Increases Environmental Value
When Hitachi presented “environmental value” as a newcore element of management strategies, we decided to
add environmental value as a clear element of performance
evaluations for executive officer compensation. We set targets
for each executive officer’s evaluation based on indexes likethose in Hitachi’s Mid-term Management Plan. We will continue
to flexibly examine and evolve this system, for example, byenhancing evaluation indexes.

86

Hitachi Integrated Report 2021

Message from the Chairman of the Audit Committee

Contributing to Building a Responsive Organization that Is
Sensitive to Risk by Strengthening the “Triangular Pyramid”
Monitoring Structure Based on Tripartite Audits
Independent Director

The Role of the Audit Committee

BU Management
Division

BU Internal Audit
SectionAccounting Auditor SCP（Segment Coordinating
Partner）

Head Office Management DivisionCorporate
Auditor
IT Sector

Accounting Auditor
Primary Team

Corporate
AuditorEnergySectorCorporate
AuditorCorporate
Audit
Committee

Automotive
Systems Business
Head OfficeInternal Audit Section

Corporate
AuditorCorporate
AuditorIndustry
SectorMobility
SectorCorporate
AuditorSmart Life
SectorFurther Improving the Effectiveness of the
Audit Committee

GovernanceTo strengthen support for Audit Committee activities, in August
2020, Hitachi established an Audit Committee Center to provide
support that would contribute to continuous improvementsin Tripartite Audits, for example, by updating and following up
on important risk and issue lists and coordinating with sector
corporate auditors and the internal audit sections. In June 2021,
independent director Helmuth Ludwig was welcomed as a new
Audit Committee member, adding to the diversity of committee
members and accelerating the globalization of debates.
Hitachi’s Audit Committee was able to smoothly improve
effectiveness as a direct result of top management’s strong
awareness and deep determination regarding governance.
With this backdrop, we ensure easy access to the persons andinformation required in auditing operations and enable regularfollow-up on all items pointed out during audits, either throughcommittee meetings, business review meetings, or audit
visits, or else through the Audit Committee Center. In addition,
the status of progress on important items, and items where
improvements were requested, are reported at meetings of theBoard of Directors.

Data

Hitachi’s Audit Committee and internal audit section collaborate
and communicate closely with accounting auditors in a process
called “Tripartite Audits,” which aims to increase transparency andthe effectiveness of internal controls while ensuring appropriate
tensions and information sharing on matters such as audit plans,
progress, risks, and respective response measures. Key auditing
matters (KAMs) are also an important part of Tripartite Audits.
We collaborate with accounting auditors and conduct ongoing
discussions from the creation of the auditing plan and throughout
the auditing process. One unique feature of Hitachi’s Tripartite
Audits is that Audit Committee members conduct preliminary audit
visits at key locations prior to internal audits by the Head OfficeInternal Audit Section. Another feature is that, to further improve
Tripartite Audits, the three parties in question conduct mutual
performance evaluations with the Finance Division, constantly
working to improve by sharing feedback from those evaluations.
Furthermore, we study and actively encourage the introductionof digital tools to further increase the efficiency of Tripartite Audits.
To strengthen the auditing structure and functions, in addition to
the existing tripartite auditing structure, which combines the Audit
Committee, the internal audit section, and accounting auditors,
we collaborate with the Head Office management divisions toprovide supervision and support in identifying, evaluating, andresolving important risks and issues. In this way, we continuously

Triangular Pyramid Monitoring Structure

Sustainability

Tripartite Audits and the Triangular Pyramid
Monitoring Structure

work to improve the Triangular Pyramid Monitoring structure thathas the Audit Committee at the top. We are working to increase
the effectiveness of the auditing structure by building a similar
Triangular Pyramid Monitoring structure that focuses not only
on the Head Office side but also on the sector corporate auditor
system introduced in each sector in 2019. The sector structure
comprises corporate management divisions in the business units,internal audit sections within each sector, and accounting auditors
responsible for those sectors.
Amid an accelerating global rollout, we identify, evaluate, andprocess a wide range of risks throughout the Hitachi Group as awhole, including 871 consolidated subsidiaries (as of the end of
March 2021). The Head Office and sectors offer mutual support
and closely share information to respond rapidly to risks andissues and to share knowledge throughout the entire company.

Value Creation

The role of the Audit Committee is to fulfill the responsibilities
entrusted to us by stakeholders, by conducting accounting
audits and audits of the legality and appropriateness of theduties executed by directors, executive directors, and corporate
officers, while at the same time paying close attention to growth
opportunities and management issues. The Audit Committee
identifies, evaluates, and processes risks and issues that thecompany is facing on a global scale, with a particular focus onlarge-scale M&As, mid-term management plans, investment
strategies, and other items in matters that bear substantial risks.
At the same time, we monitor the progress of post-merger
integration processes and company-wide digital transformations
and exchange opinions on improvement measures as they
become necessary. In fiscal 2020, amid the COVID-19 pandemic,
we followed the Hitachi Group’s safety and health policy ofplacing top priority on protecting safety and health. We used web
conferences and other IT tools to hold Audit Committee meetingsand conducted remote audits. Overseas, we conducted remote
audits and effectively utilized auditing talent from overseas regional
supervisory companies.

VisionHiroaki Yoshihara

87Corporate GovernanceAnalysis and Evaluation of the Effectiveness of the Board of Directors
The Company evaluates the effectiveness of its Board of Directors each year in a continuous effort to maintain and improve its
functions.

Fiscal 2020 Evaluation Process
Points of evaluation• Composition: diversity on the Board, the number and proportion of Inside and Outside Directors, etc.
• Visibility of responsibilities and roles of the Board• Meeting operation: meeting frequency, deliberation time, agenda setting, quality of deliberation, Chairman’s role, etc.

1. Questionnaire-based selfassessment by each director(February–March 2021)• Contribution: contribution to strategy building and change of company culture, contribution to have constructive
discussions, utilization of Director’s knowledge and experience, discussions based on taking the Digital Transformation,etc.
• Understanding of the Company: Hitachi Group Identity, risk factors, potential challenges and opportunities.
• Three committees: composition, responsibilities and roles, coordination with the Board, etc.
• Supporting system for the Board: provision of necessary information such as the Board materials, etc.

2. Discussions among
independent directors(March 2021)• Independent directors had a meeting and discussed the Board effectiveness there.

3. Discussions at the Board
meeting (May 2021)• The Board analyzed and evaluated its effectiveness as a whole and confirmed the policy on approaches to further enhance
the Board’s effectiveness based on the results of the preceding process, considering comparison to the evaluation resultsof the previous year and measures taken for improving its effectiveness in fiscal 2020.

Evaluation Results and Future Initiatives
Evaluation results

Overall evaluationin fiscal 2020

• The Board assessed that the Board members are diverse and make use of their knowledge and expertise to speak out,
having vigorous discussions especially on matters related to business strategies such as the mid-term management plan
toward mid/long-term growth of corporate value. The Board, therefore, concluded that the effectiveness of the Board asa whole is maintained.

Future initiatives• Examine the discussion process for strategy discussions based on a mid- to long-term perspective and establish a timeand forum for deepening discussions.

Further enhancement ofcorporate governance• Business strategy reports and discussions at Board meetings will continue to be implemented on a sector by sector basis,and discussions will focus on strategy, such as a risk matrix based on factors such as the standing of the Company, thestatus of competitors, technology, talent, finance and Lumada strategy.
• Risk management, ESG and investor relations will be submitted as agenda items as important matters for improving longterm corporate value.
• The Board will attempt to strengthen a relationship with the Nominating Committee and further contribute to succession
planning of the CEO (e.g. enhancement of the Nominating Committee’s reports to the Board, one-on-one meetings withCEO successor candidates and next generation leader candidates).

Enhancement of supporting
system for the Board andimprovement of practicalissues in operations

88

Hitachi Integrated Report 2021

• Post COVID-19, restarting to provide Independent Directors with information on opportunities of visiting sites and eventsof Hitachi Group.
• Further improve structure and contents of materials for the Board meeting and operation of provision of materials well inadvance of the Board meeting.

CEO Appointment, Dismissal, and Succession Plan
Hitachi’s Board of Directors decides upon the appointment and dismissalof executive officers, including the CEO, with the goal of constructing an
optimal business execution system for management. Decisions regarding
the appointment or dismissal of executive officers are based on proposals
from the Nominating Committee. As stipulated in our Corporate Governance
Guidelines, our basic policy concerning the CEO requires that individuals
serving in the position of CEO have extensive experience and achievementsin the field of company management. They must also be considered
optimally suited for conducting management aimed at achieving Hitachi’s
goals of continuously raising its corporate value and further serving thecommon interests of its shareholders. Decisions regarding the appointment
or dismissal of the CEO shall be made based on prior deliberations andproposals by the Nominating Committee.
Regarding our CEO Succession Plan, as the speed of change in the
management environment accelerates, we are striving to build a system thatenables us to appropriately and promptly secure and develop (both internallyand globally) necessary management personnel who will provide leadership

3

STEP
Select candidates forimportant positions

4

STEP
Evaluate candidates

Value Creation

2

STEP
Define the roles and personnel
requirements associated with
important positions

Vision1

STEP
Designate important
positionsthat will allow us to realize our growth strategies. Accordingly, we are also
concentrating on providing training for selected employees while targetingthe early development of candidates for future management positions.
Moreover, we are developing next-generation leaders capable of acting
authoritatively and resolutely by establishing forums where participants
can discuss what is necessary for Hitachi’s future growth and makerecommendations to management.
In addition, we have identified a group of about 50 employees from aroundthe Hitachi Group with next-generation development potential. People inthis “Future 50” group are selected on merit, regardless of age, gender, or
nationality. They are given challenges to help expand their horizons and build
their perspectives through tough assignments including different types ofwork and internal and external training opportunities. The Future 50 groupmembers receive one-on-one mentoring opportunities with independent
directors to benefit directly from their extensive business experience andglobal perspectives. Our aim is to change mindsets so that we can develop
people for important positions in the future.

5

STEP
Develop candidates

Sustainability

Director and Executive Officer Compensation• Compensation shall be such that it enables the Company to attract necessary personnel to achieve an improvement in corporate value
through global business growth.
• Compensation shall be commensurate with the roles and responsibilities of each Director and Executive Officer.

Basic
Policy• Compensation for Directors shall be such that it enables them to exercise the functions of supervision of management effectively.
• Compensation for Executive Officers shall be such that it enables them to contribute to sustained improvement in corporate value through theexecution of business and employs an appropriate balance between short-term performance and medium- and long-term performance.
Governance• The level of compensation shall be determined considering compensation levels at other companies as well as economic and market trends.
• The Compensation Committee utilizes external experts to gain expert advice and an objective viewpoint, if necessary, for considering thedetails and amounts of compensation.

Compensation Structure(1) Directors
Compensation for Directors is basic remuneration as fixed pay. The amountof basic remuneration is decided by adjusting a basic amount to reflect fulltime or part-time status, committee membership and position, and travelfrom place of residence, etc. A Director concurrently serving as an Executive
Officer is not paid compensation as a Director.

Compensation for Executive Officers consists of basic remuneration as fixed
pay and short-term incentive compensation and medium- and long-term
incentive compensation as variable pay.
The basic amount of basic remuneration, short-term incentive compensationand medium- and long-term incentive compensation is set based on theratio of 1:1:1 as the standard, taking into account the composition of

Data(2) Executive Officers

executive compensation for major global companies, in order to improve
corporate value through the growth of global businesses.
The higher position an Executive Officer holds, the higher the proportion ofvariable pay is set to the total annual compensation.
As part of efforts to achieve carbon neutrality at Hitachi business sites(factories and offices) by fiscal 2030, in fiscal 2021, an evaluation systemthat considers environmental value was introduced into short-term incentive
compensation for executive officers. Specifically, targets are set forenvironmental strategies and solutions to environmental issues based on thedivisions and operations handled by each executive officer, and performanceis evaluated according to the degree of target achievement.
If it is found that an executive officer has been engaged in misconduct duringhis/her term of office, compensation for such Executive Officer that has been
already paid shall be returned to the Company (clawback provision).

Please refer to Compensation to Directors and Executive Officers on page 101 of the Annual Securities Report (The 152nd Business Term).
https://www.hitachi.com/IR-e/library/stock/hit_sr_fy2020_4_en.pdf

89Corporate GovernanceCompensation to Executive Officers (Fiscal 2021)
Basic remuneration : short-term incentive compensation : medium- and long-term incentive compensation = 1:1:1 ratio

Total remuneration
Fixed pay

Variable pay

2 Short-term incentive

1 Basic remuneration

3 Medium- and long-term

incentive compensationcompensation

1 Basic remuneration

Set according to the relevant position by adjusting that amount to reflect financial results and individual performance.
2 Short-term incentive compensation
The amount of short-term incentive compensation is decided within the range of 0 to 200% of a basic amount set according to therelevant position by adjusting that amount to reflect financial results and individual performance.
(Executive officers forming the Senior Executive Committee*)

Linked to evaluations of Company-wide performance (80%)(Other executive officers)

Linked to evaluations ofdivisional performance (50%)

Linked to evaluations ofCompany-wide performance (30%)

Evaluated referring to adjusted operating income and operating cash
flows for each division, among other indicators, to measure the levelof achievement of targets under the Mid-term Management Plan andthe annual budgets for divisions.

Evaluated referring to consolidated revenues,
adjusted operating income, EBIT, andnet income attributable to Hitachi, Ltd.
stockholders in order to measure the levelof achievement of consolidated financial
forecasts disclosed to stakeholders, including
shareholders and investors.

Linked to evaluations
regarding the achievementof individual targets (20%)
Varies according to the evaluation of thelevel of achievement of individual targets
for each Executive Officer determinedbased on his/her responsibility.

* The rates used for “other executive officers” apply when “executive officers forming the Senior Executive Committee” are in charge of sector or business unit

3 Medium- and long-term
incentive compensation
Shares of restricted stock were introducedin fiscal 2019 as compensation forJapanese executive officers and corporate
officers (the executive positions next to
Executive Officers) to propel managementfrom a medium- and long-term perspective
and to provide incentives to bring about asustainable increase in enterprise value by
further promoting senior management’s
shared values with shareholders throughthe holding of shares during their termof office. In fiscal 2020, a restricted
stock compensation unit system* 1 wasintroduced as compensation for nonJapanese executive officers and corporate
officers. In fiscal 2021, the scope of therestricted stock compensation unit system
was expanded to executives at someGroup companies.

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Hitachi Integrated Report 2021

The shares of restricted stock• The restriction on transfer shall be lifted if executive officers resign from all of thepositions of the Company’s executive officer, director, and corporate officer.
• With regard to one-half of the granted shares of restricted stock, the numberof shares whose transfer restriction is lifted shall be determined after ex-post
evaluation. In the ex-post evaluation, the total shareholder return (TSR) of Hitachi
stock over the three years from the beginning of the fiscal year when the mediumand long-term incentive compensation is granted is compared to growth rate of
TOPIX over the same period.
TSR/TOPIX growth rate

Shares for which the transfer restrictions are lifted

120% or more

Transfer restrictions are lifted for all granted shares.

Between 80% or more but
less than 120%

Transfer restrictions are lifted for part of granted shares*2.

Less than 80%

No granted shares have transfer restrictions lifted.

*1 A system in which restricted stock compensation units are granted to the eligible persons, and over three years
from the start of the business year in which the restricted stock compensation units were granted, one-third of
the number of restricted stock compensation units granted is paid in each fiscal year that passes, as Hitachi
stock or cash
*2 Number of shares whose transfer restrictions are lifted= Number of granted shares × {(TSR/TOPIX Growth Rate Ratio × 1.25) – 0.5}
Shares whose transfer restrictions are not lifted shall be acquired by Hitachi without consideration

Internal Control over Financial Reporting
To ensure the reliability of its consolidated financial reporting,the Hitachi Group is establishing and implementing relevantinternal controls. We evaluate their effectiveness by adhering
to standards for the evaluation of internal controls related
to financial reporting that are generally accepted as fair andreasonable.

VisionFurthermore, we have established the J-SOX Committee withthe goal of raising the effectiveness of these internal controls.
This committee evaluates internal control effectiveness andestablishes frameworks designed to improve and strengthenthem.

Creation of a system focused on
maintaining transparency anda sense of urgency

Management of risk associatedwith global business expansion

Financial
Services
AgencyInternal
ControlReportHitachi, Ltd. President
Chief Financial Officer

Audit
Committee

ReportJ-SOX Committee

ReportReportCooperation

ReportValue Creation

Internal Control Assessment Framework

Business Units andMajor Group Companies

Internal Auditing
Office(Internal Audit
Office)ReportExecution

External Audits

Sustainability

Subsidiary Companies

Accounting auditors(accounting audits)

Tripartite audit
approach

Regulation

Enhanced Collaboration through Tripartite Audits
the three parties communicate closely to share risk information
and assessments concerning risk response while securingtransparency and ensuring appropriate checks and balances.
GovernanceIn pursuit of sustainable growth in corporate value, Hitachi’s
Audit Committee and internal audit section collaborate withthird-party accounting auditors to strengthen its “Tripartite
Auditing,” which aims to increase the effectiveness of internal
controls. Our Audit Committee takes the lead in this regard, as

Ensuring transparency and a senseof urgency and improving theeffectiveness of internal controls

Sharing of risk information andassessments of risk response

Audit
Committee

Data•Audit plans•Audit Policy and auditing methods•Assessment and reporting ofaudit results•Methods and results ofinternal audits•Evaluation of group audit system•Sharing of risk information •Reciprocal reporting andevaluation concerning•Audit plans and resultsgroup audits•Internal audit results•Reporting on the quality
control system

Tripartite audit
approachInternal audit
section(Internal Audit
Office)Accounting auditors(accounting audits)•Exchange of information regarding audit plans,
auditing methods, and audit results•Sharing of risk information•Division of internal auditing duties and mutual
utilization of audit information

91

Corporate Governance

Building a More Effective and Efficient Auditing System
Our Audit Committee formulates audit plans in accordancewith its risk-based approaches and conducts audits for eachconsolidated business unit. Audit Committee members meet
directly with business unit heads before the internal audit
section’s audits are carried out. Then, these members informthe internal audit section about concerns and issues related tothe implementation of business strategies aimed at achieving
sustainable growth that require attention. At that time, thecommittee also verifies matters that carry high levels of riskin terms of quality, measuring these risks through employee
awareness surveys and thorough implementation of businessstrategies.
Hitachi’s internal audit section performs regular internal audits
at each business site and location. This section reports
directly to the President and is independent from organizations
that are subject to its audits. The internal audit section also
formulates audit plans based on past audit records and themost recent business circumstances. In addition, this section
performs audits upon receiving direction from the Audit
Committee, ensuring their effectiveness. The internal audit
section at Hitachi is responsible for confirming the legality
and appropriateness of all business operations, including
those related to accounting, production management, sales,purchasing, IT systems, compliance, and human resources.
Furthermore, acting on behalf of our management team, theinternal audit section confirms whether the employees are wellversed in the ideas and policies of our management, and theiroperations are being carried out based on these ideas andpolicies and if business strategies are being implemented in a
way that will efficiently lead to sustainable growth.
To further raise audit effectiveness, we implemented a “chief
auditor system” in each of our five sectors (IT, Energy, Industry,
Mobility, Smart Life) in April 2019. Through this action, we built
an internal control system spearheaded by chief auditors andenhanced collaboration with the executive vice presidents who
manage each sector and with the Audit Committee.

92

Hitachi Integrated Report 2021

Although these chief auditors do not act as legal agents
under the Companies Act, they still assume responsibility forgovernance in each sector. Statutory auditors, which function
as legal agents at Hitachi subsidiaries under the Companies
Act, also report to these chief auditors and work to improve theeffectiveness of Hitachi’s internal control systems.
When conducting business audits, we use IT systems to
expeditiously search for reference information contained withinmaterials submitted prior to audit in an attempt to improve
efficiency. We are currently enhancing a system that will allow
our internal audit section to share information with professional
accounting auditors using a data lake. When reading audit
reports submitted to the President by the internal audit section,
the President must be able to quickly understand the issues
identified by these reports and make prompt judgments
concerning whether immediate action is required. In the
future, our internal audit section will continue to maintain its
transparency and independence while working to improveaudit efficiency as one member of our Tripartite Audit system.
Our accounting auditors perform audits that focus on theaccuracy and reliability of our financial statements. First, they
adopt a risk-based approach in response to the Group’s overall
financial status. Applying this approach, they then determine
the scope and methods of the audit, formulate an audit plan,and share opinions with the Audit Committee. Next, based on
the audit plan, they perform audits on each of the five sectors
and the business units that comprise them, enabling effective
and efficient understanding of data related to Hitachi’s financedepartment and each of its business segments. If, during theauditing process, our accounting auditors discover a degree ofrisk that could impact future financial statements significantly
or issues that, even if monetarily small, could have a large
qualitative effect, they share related information regarding theserisks and issues and the progress on a response from therelated divisions with the Audit Committee and internal audit
section. They also work to improve and raise the effectivenessof audits by submitting “management letters” containing pointsof concern and improvement suggestions through the financedepartment. Recently, they have also been working to raise
the efficiency of checks on the accuracy of numerical figuresby using some IT systems to investigate all cases rather thanperforming test-checking through sampling.

Comprehending Management Issues through Conversations with Stakeholders

Main roles

Value Creation

Stakeholders

as well.
In March 2021, Hitachi Europe held a two-day online
stakeholder dialogue based on the theme of “Hitachi’s
approach towards a zero-carbon society.” The event
welcomed 29 participants, including corporate executives,
persons involved in sustainability activities, policy makers,
investors, and NGOs. Hitachi will continue to promote active
dialogues with stakeholders and work to increase social andenvironmental value by applying knowledge from this event incorporate management activities.

VisionHitachi promotes its Social Innovation Business with efforts toperceive the social issues in each country or region, followedby collaborative creation with customers, national and local
governments, academic and research institutes, and otherstakeholders to resolve them. We strive to enhance the valueof human capital—which are indispensable management
resources for conducting business—and place importance on
direct dialogue between employees and senior management.
Furthermore, given the recent increase in ESG investments, we
actively engage in dialogues with shareholders and investors

Means of communication (fiscal 2020 results)• Customer satisfaction activities

Customers

Creation of better products and services• Marketing

Response to complaints• Website

Appropriate disclosure of information on products andservices• Advertising activities• “Global Brand Campaign” (14 locations)• Holding the Hitachi Social Innovation Forum (9 countries in 3 regions)• Financial results briefings (quarterly)• General shareholders’ meeting (annual)

Timely and proper information disclosure, obtainingof fair recognition and support from capital markets,reflection of shareholder and investor viewpoints incorporate management• Business strategy briefing “Hitachi Investor Day”

Sustainability

Shareholders andinvestors• Stakeholder dialogue (annual)• One-on-one meetings with institutional investors and analysts (approx.
660 meetings)• IR tools: Integrated Report, business reports, etc.
• Information disclosure on website for stakeholders and investors

Suppliers

Building of fair and sound business relations, smooth
information sharing toward better partnerships• Procurement activities • CSR monitoring (271 companies)• CSR audits (27 companies)• CSR Seminar for Suppliers (450 companies)• Intranet, in-house newsletters

Employees

Governance• Training
Proper treatment, promotion of occupational health andsafety of human capital• Town hall meetings between senior management and employees(President & CEO: 7 meetings, executive vice presidents: 8 meetings)• Employee survey (annual)• “Make a Difference!” idea contest
Compliance with domestic and foreign laws andregulations, policy recommendations, participation inindustry-government-academia collaborative projects

Local communities

Fulfillment of responsibilities as a corporate citizen,
involvement in local communities

Academic
associations
and research
institutions

Promotion of technological innovations, participation inindustry-government-academia collaborative projects

NGOs and NPOs

Incorporation of diverse public opinions, promotion of
stakeholder-focused management, social contribution
through nonprofit activities

Global environment

Realization of a decarbonized society, a resourceefficient society, a harmonized society with nature• Academic research for policy recommendations to internationalorganizations and national governments, lobbying activities• Policy council participation (Japan)• Participation in business and industry associations (Japan)• Contribution to local communities through business• Participation in volunteer activities
Data

National and local
governments,
industrial
associations• Open innovation (joint research)• Stakeholder dialogue (annual)• Dialogue through collaboration• Stakeholder dialogues about environment (annual)93

Leadership (As of June 23, 2021)
Independent Directors*

Katsumi Ihara

Ravi Venkatesan

Cynthia Carroll

Joe Harlan

Share ownership: 900 shares
Term of office as Independent
Director: 3 years

Share ownership: 200 shares
Term of office as Independent
Director: 11 months

Share ownership: 1,400 shares
Term of office as Independent
Director: 8 years

Share ownership: 900 shares
Term of office as Independent
Director: 3 years

2005

1999

1991

1999

2009

2010
2011
2015
2016
2018

Executive Deputy President,
Representative
Corporate Executive Officer, Memberof the Board, Sony Corporation
Executive Deputy President,
Corporate Executive,
Sony Corporation
Executive Vice President,
Representative Director,
Sony Financial Holdings Inc.
President, Representative Director,
Sony Financial Holdings Inc.
President, Representative Director,
Sony Life Insurance Co., Ltd.
Chairman, Director, Sony Life
Insurance Co., Ltd. (Retired in June
2017)
Chairman, Director, Sony Financial
Holdings Inc. (Retired in June 2017)
Director, Hitachi, Ltd.

2004
2011

2013
2015
2018
2020

Chairman of the Board of Directors,
Cummins India Ltd. (Retired in March
2004)
Chairman, Microsoft India Pvt. Ltd.
(Retired in September 2011)
Independent Director, Infosys Ltd.
(Retired in May 2018, served as
Co-Chairman from April 2017 toAugust 2017)
Venture Partner, Unitus Ventures LLC.
(Currently in office)
Chairman (Non-Executive), Bank of
Baroda (Retired in August 2018)
Special Representative for Young
People & Innovation, UNICEF(Currently in office)Director, Hitachi, Ltd.

1996
1998
2002
2007
2013

General Manager, Foil Products,
Alcan Inc.
Managing Director, Aughinish Alumina
Ltd., Alcan Inc.
President, Bauxite, Alumina andSpecialty Chemicals, Alcan Inc.
President & CEO, Primary Metal
Group, Alcan Inc.
CEO, Anglo American plc. (Retired in
April 2013)
Director, Hitachi, Ltd.

2001
2002
2004
2009
2011
2012
2014
2015
2018

George BuckleyLouise Pentland

Harufumi Mochizuki

Takatoshi Yamamoto

Share ownership: 6,700 shares
Term of office as Independent
Director: 9 years

Share ownership: 1,000 shares
Term of office as Independent
Director: 6 years

Share ownership: 4,800 shares
Term of office as Independent
Director: 9 years

Share ownership: 11,300 shares
Term of office as Independent
Director: 5 years

1993

1997
2001

Chairman of the Board
Chair of the Nominating Committee
Chair of the Compensation Committee

1995

1994
1997
2000

2005
2012

94

Vice President and Chief Financial
Officer, Lighting Business, General
Electric Company
Vice President, Corporate Financial
Planning and Analysis, 3M Company
President and Chief Executive Officer,
Sumitomo 3M Ltd.
Executive Vice President, Electro andCommunications Business, 3M Company
Executive Vice President, Consumer
and Office Business, 3M Company
Executive Vice President,
Performance Materials, The Dow
Chemical Company
Executive Vice President, Chemicals,
Energy and Performance Materials,
The Dow Chemical Company
Chief Commercial Officer and Vice
Chairman, Market Business, The Dow
Chemical Company
Vice Chairman and Chief Commercial
Officer, The Dow Chemical Company(Retired in August 2017)
Director, Hitachi, Ltd.

Chief Technology Officer, Motors,
Drives and Appliances, Emerson
Electric Company
President, US Electrical Motors,
Emerson Electric Company
President, Mercury Marine Division
and Corporate Vice President,
Brunswick Corporation
President and Chief Operating Officer,
Brunswick Corporation
Chairman and Chief Executive Officer,
Brunswick Corporation
Chairman of the Board, President andChief Executive Officer, 3M Company
Executive Chairman of the Board,
3M Company (Retired in May 2012)
Chairman, Arle Capital Partners
Limited (Retired in December 2015)
Director, Hitachi, Ltd.

Hitachi Integrated Report 2021

2007
2008
2009
2011
2015

2016

Admitted as a Solicitor (UK)
Senior Legal Counsel, Nokia Networks,
Nokia Corporation
Vice President, Acting Chief Legal
Officer and Head of IP Legal, Nokia
Corporation
Senior Vice President and Chief Legal
Officer, Nokia Corporation
Admitted to New York State Bar
Association
Executive Vice President and Chief
Legal Officer, Nokia Corporation(Retired in May 2014)
General Counsel, PayPal, eBay Inc.
Director, Hitachi, Ltd.
Senior Vice President and Chief Legal
Officer, PayPal Holdings, Inc.
Executive Vice President and Chief
Business Affairs & Legal Officer, PayPal
Holdings, Inc. (Currently in office)

2002

2003
2006
2008
2010

2012
2013

Director-General for Commerce andDistribution Policy, Minister’s
Secretariat, Ministry of Economy, Tradeand Industry of Japan (“METI”)
Director-General, Small and Medium
Enterprise Agency, METI
Director-General, Agency for Natural
Resources and Energy, METI
Vice-Minister of Economy, Trade andIndustry of Japan
Special Advisor to the Cabinet of Japan(Retired in September 2011)
Senior Advisor to the Board, Nippon Life
Insurance Company (Retired in April 2013)
Director, Hitachi, Ltd.
President and Representative Director, Tokyo
Small and Medium Business Investment &Consultation Co., Ltd. (Currently in office)

1999
2005
2009
2011
2016

Managing Director, Morgan Stanley
Japan Limited
Managing Director and Vice Chairman,
Tokyo Branch, Morgan Stanley Japan
LimitedManaging Director and Vice Chairman,
UBS Securities Japan Co., Ltd.
Managing Director, CASIOCOMPUTER CO., LTD.
Advisor, CASIO COMPUTER CO.,LTD. (Retired in June 2012)
Director, Hitachi, Ltd.

Nominating Committee
Audit Committee
Compensation Committee

VisionEach Committee is composed of the following members(chair names underlined)
Nominating Committee:
Harufumi Mochizuki, Cynthia Carroll,
Hiroaki Yoshihara, Toshiaki Higashihara
Audit Committee:
Hiroaki Yoshihara, Katsumi Ihara, Harufumi Mochizuki,
Takatoshi Yamamoto, Helmuth Ludwig, Hideaki Seki

Helmuth Ludwig

Share ownership: 2,600 shares
Term of office as Independent
Director: 7 years

Share ownership: 1,900 shares
Term of office as Independent
Director: 11 months

Chair of the Audit Committee

2001

1978
1996

2002

1997
2003
2014

Joined Peat Marwick Mitchell & Co.
National Managing Partner, the Pacific
Rim Practice, KPMG LLPThe Board Member, KPMG LLP
Vice Chairman and Global Managing
Partner, KPMG International (Retired in
April 2007)
Director, Hitachi, Ltd.

2007
2010
2011
2014

2016
2020

Compensation Committee:
Harufumi Mochizuki, Katsumi Ihara, Joe Harlan,
Takatoshi Yamamoto, Keiji Kojima

President, Software and System House
Division, Siemens AG
President, Systems Engineering
Division, Automation and Drives Group,
Siemens AG
President, Siemens PLM Software, Inc.
Global Head of Communications,
Industry Automation, Siemens Corp.
President and CEO, Industry Sector,
North America, Siemens Industry, Inc.
Executive Vice President and Chief
Digital Officer, Digital Factory Division,
Product Lifecycle Management,
Siemens Corp.
Chief Information Officer, Siemens AG(Retired in December 2019)
Professor of Practice in Strategy
and Entrepreneurship, Cox Schoolof Business, Southern Methodist
University (Currently in office)Director, Hitachi, Ltd.

Value Creation

Hiroaki Yoshihara* The “independent directors” are the directors who fulfill the qualification
requirements to be outside directors as provided for the Companies
Act of Japan and also meet the independence criteria defined by theCompany and those provided by Japanese stock exchanges where
the Company is listed

Sustainability

Directors

Governance

Keiji Kojima

Hideaki Seki

Toshiaki Higashihara

Share ownership: 67,300 shares
Newly appointed

Share ownership: 11,500 shares

Share ownership: 175,300 shares

1982
2011

1979
2011

1977
2007

2012
2016

2021

2013
2014
2015
2016
2018

2020

Joined Hitachi, Ltd.
Board Director, Hitachi Automotive
Systems, Ltd.
Vice President, Board Director, Hitachi
Automotive Systems, Ltd.
Executive Vice President, Board
Director, Hitachi Automotive Systems,
Ltd.
President & COO, Representative
Director, Hitachi Automotive Systems,
Ltd.
President & CEO, Representative
Director, Hitachi Automotive Systems,
Ltd.
Senior Vice President and Executive
Officer, Hitachi, Ltd. President,
Representative Director, Hitachi
Building Systems Co., Ltd. (Retired in
March 2020)
Associate, Hitachi, Ltd.
Director, Hitachi, Ltd.

2008
2010

2011
2013
2014
2016
2021

Joined Hitachi, Ltd.
Vice President and Executive Officer(Retired in March 2008)
President, Hitachi Power EuropeGmbH
President and Chief Executive Officer,
Hitachi Plant Technologies, Ltd.
President and Representative Director,
Hitachi Plant Technologies, Ltd.
Vice President and Executive Officer,
Hitachi, Ltd.
Senior Vice President and Executive
Officer, Hitachi, Ltd.
President & COO, Hitachi, Ltd.
President & COO and Director, Hitachi,
Ltd.
President & CEO and Director, Hitachi,
Ltd.
Executive Chairman, President & CEO
and Director, Hitachi, Ltd.
Executive Chairman & CEO and
Director, Hitachi, Ltd.

Data

2018

Joined Hitachi, Ltd.
General Manager, Hitachi ResearchLaboratory
Vice President and Executive Officer
Senior Vice President and Executive
Officer
Executive Vice President andExecutive Officer
President & COO and Director

95

Leadership

Executive Officers
Executive Chairman & CEO

President & COO

Executive Vice President and Executive Officers

Toshiaki Higashihara*

Keiji Kojima*

Masakazu Aoki*

Ryuichi Kitayama*

Alistair Dormer*

GeneralOverall management, smart life
& ecofriendly systems business,healthcare strategy

Assistant to the President(business for industry &distribution sectors, water &environment business, andindustrial products business)

Assistant to the President(marketing & sales and regional
strategies), marketing & sales
and regional strategies

Assistant to the President(building systems business,railway systems business, andenvironmental strategy) andenvironmental strategy

Senior Vice Presidents and Executive Officers

Toshiaki Tokunaga*

Toshikazu Nishino*

Jun AbeYoshihiko Kawamura*

Katsuya Nagano

Assistant to the President(systems & services, businessand defense systems
business), systems & services
business, defense systems
business, and social innovation
business promotion

Assistant to the President(nuclear energy business,
energy business and power
grids business)

Services & platforms business

Finance, corporate pension
system, and investment
strategies

Business for government,
public corporation and social
infrastructure systems, anddefense systems business

Hidenobu Nakahata*

Claudio Facchin

Power grids businessCorporate communications,
corporate auditing, corporate
export regulation, and human capital

Mamoru Morita
Management strategies andstrategies for next generation
business

Vice Presidents and Executive Officers
Hitoshi Ito

Tatsuro Ueda

Kenji Urase

Tadashi Kume

Government & external relations
and sustainability strategy

Business for financial institutions

Energy business

Nuclear energy business

Kohei Kodama

Norihiro Suzuki

Yoji Takeuchi

Lorena Dellagiovanna

Legal matters, risk management
and corporate auditing

Research & development

Marketing & sales (business for industry &distribution sectors, water & environment
business, building systems business, railway
systems business and smart life business)

Diversity & inclusion strategy,
government & external relations andenvironmental strategy

Kojin Nakakita

Hideshi Nakatsu

Seiichiro Nukui

Andrew Barr

Regional strategies (APAC)

Water & environment businessInformation technology strategies

Railway systems business

Masahiko Hasegawa

Tatsuro Hoshino

Kentaro Masai

Shinya Mitsudomi

Marketing & sales and regional
strategies (Japan)

Marketing & sales (business forfinancial institutions, government,
public corporation and social
infrastructure systems and defense
systems business)

Supply chain management(manufacturing strategy and quality
assurance)

Building systems business

Masashi Murayama

Kazunobu Morita

Takashi Yoda

Cost structure reform andinformation security management

Business for industry & distributionsectors

Regional strategies (China)
Note: Executive officers are listed by position and in Japanese alphabetical order within each grouping.
The asterisk (*) denotes executive officers who are representative executive officers

96

Hitachi Integrated Report 2021

Vision

Data Section
98 10-year Financial Data
100 5-year Non-financial Data
101 Segment Highlights
102 Corporate Data / Stock Information /Representations and Warranties

Value Creation
Sustainability
Governance
Data

97

10-year Financial Data

FY2011For the year:

FY2012FY2013

U.S. GAAP (through FY2013)

FY2014IFRS (from FY2014)

9,665,883

9,041,071

9,563,791

9,774,930

Adjusted operating income

412,280

422,028

538,288641,325

EBIT

573,218

358,015585,662534,059

347,179

175,326

264,975

217,482

76.81

37.28

54.86

45.04

71.86

36.29

54.85

45.00

Net cash provided by operating activities

447,155

583,508

439,406

451,825

Net cash used in investing activities(195,584)(553,457)(491,363)(612,545)

Free cash flows

251,571

30,051(51,957)(160,720)

Core free cash flows(21,293)

45,702(186,042)(176,448)

Net cash provided by (used in) financing activities(167,838)(180,445)

32,968233,206

Capital expenditures (Property, plant andequipment)

649,234

742,537

849,877

431,201

Depreciation (Property, plant and equipment)

360,358

300,664

329,833

350,783

R&D expenditures

412,514341,310351,426

334,814

Total assets

9,418,526

9,809,230

11,016,899

12,433,727

Property, plant and equipment

2,025,538

2,279,964

2,342,091

2,472,497

Total Hitachi, Ltd. stockholders’ equity

1,771,782

2,082,560

2,651,241

2,942,281

Interest-bearing debt

2,396,454

2,370,079

2,823,049

3,557,356

Adjusted operating income ratio

4.3

4.7

5.6

6.6

EBIT ratio

5.9

4.0

6.1

5.5

Return on revenues

3.6

1.9

2.8

2.2

ROIC

ー

ー

ー

ー

Return on equity (ROE)

21.6

9.1

11.2

7.8

Return on assets (ROA)

4.4

2.5

3.5

2.9

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

0.86

0.75

0.73

0.83

Total Hitachi, Ltd. stockholders’ equity ratio

18.8

21.2

24.1

23.7

Dividend payout ratio

10.4

26.8

19.1

26.6

Revenues

Net income attributable to Hitachi, Ltd.
stockholders
Earnings per share attributable to Hitachi, Ltd.
stockholders, basic (yen)Earnings per share attributable to Hitachi, Ltd.
stockholders, diluted (yen)At year-end:

Financial ratios:

Note 1: Terminology differs under U.S. GAAP and IFRS for the following line items (U.S. GAAP/IFRS)• Operating income/Adjusted operating income• Net income per share attributable to Hitachi, Ltd. stockholders, basic/Earnings per share attributable to Hitachi, Ltd. stockholders, basic• Net income per share attributable to Hitachi, Ltd. stockholders, diluted/Earnings per share attributable to Hitachi, Ltd. stockholders, diluted

98

Hitachi Integrated Report 2021

Annual Securities Reporthttps://www.hitachi.com/IR-e/library/stock/hit_sr_fy2020_4_en.pdf

Millions of yen

FY2018FY2019FY202010,034,305

9,162,264

9,368,614

9,480,619

8,767,263

8,729,196

634,869

587,309714,630

754,976

661,883

495,180

531,003475,182644,257

513,906

183,614850,287

172,155

231,261

362,988

222,546

87,596501,613

35.65

47.90

375.93230.4790.71

519.29

35.62

47.88

375.60230.2590.60

518.51

812,226

629,582

727,168

610,025

560,920

793,128(730,799)(337,955)(474,328)(162,872)(525,826)(458,840)

81,427

291,627

252,840

447,153

35,094334,288

113,371

100,215

283,593

136,079

135,441

419,848(26,467)(209,536)(321,454)(320,426)

2,837(184,838)

528,551

377,545374,901

414,798

399,643

359,897366,547

302,757

265,413271,682

342,450

345,201

333,730

323,963

332,920

323,145

293,799

293,571

Sustainability

FY2017

Value Creation

FY2016

VisionFY2015

Millions of yen

12,551,005

9,663,917

10,106,603

9,626,592

9,930,081

11,852,853

2,500,226

1,998,411

2,124,827

1,956,685

2,165,311

2,408,887

2,735,078

2,967,085

3,278,024

3,262,603

3,159,986

3,525,502

3,604,455

1,176,603

1,050,294

1,004,771

1,485,042

2,397,356

6.4

7.6

8.0

7.5

5.7

5.3

5.2

6.9

5.4

2.1

9.7

1.7

2.5

3.9

2.3

1.0

5.7

ー

ー

―

8.5

9.4

6.4

6.1

8.1

11.6

6.8

2.7

15.0

2.4

3.0

5.0

3.3

1.3

4.8

0.87

0.29

0.23

0.23

0.35

0.54

21.8

30.7

32.4

33.9

31.8

29.7

33.7

27.1

20.0

39.1

104.8

20.2

Data

6.3

Governance%

Note 2: To represent actual management conditions more appropriately, operating income/adjusted operating income is presented as revenues less selling, general and administrative expenses, as well as cost of sales
3: “Core free cash flows” are cash flows presented as free cash flows excluding cash flows from M&A and asset sales, etc.
4: On October 1, 2018, the Company completed the share consolidation of every five shares into one share for its common stock. The figures for basic and diluted earnings per share attributable to Hitachi, Ltd. stockholders arecalculated on the assumption that the Company conducted this consolidation at the beginning of the previous fiscal year
5: ROA (Return on assets) = Net income / Total Assets (Average between the end of current fiscal year and the end of previous fiscal year) x 100

99

5-year Non-financial Data

Human Capital

FY2016FY2017FY2018FY2019FY2020Consolidated

303,887

307,275

295,941

301,056

350,864

Non-consolidated

35,631

34,92533,49031,442

29,850

Average service (years)*1

15.0

14.9

15.1

15.0

13.6

Turnover ratio (%)*1*2

5.3

5.5

6.3

5.2

4.3

18.3

18.2

18.8

19.4

19.1

Global ratio (number) of female managers

6.7(2,562)

7.3(3,325)

8.3(3,975)8.9(4,302)

9.5(4,641)

Ratio (number) of female managers*1*5

4.1
(509)

4.2
(577)

4.8
(635)

5.5
（700）

6.5
(768)

27.65

24.33

27.96

20.76

18.98

Number of employees

Diversity & Inclusion
Ratio of female employees (%)*1*1*3*4

Hitachi Group’s Global Safety Figures (Occurrence rate*6)
North America
Latin America

2.33

1.62

0.44

0.57

2.12

Europe

10.70

10.82

6.08

4.78

3.09

India

2.07

1.44

1.44

1.63

1.07

China

1.59

1.53

1.46

1.17

1.12

Asia (excluding India and China)

5.43

4.41

3.34

2.63

1.55

Oceania

39.07

24.41

21.94

29.07

12.95

Africa

17.26

9.93

11.76

9.72

25.37

Outside Japan total

7.76

7.42

7.43

5.78

4.90

Japan

1.57

1.85

1.64

1.53

1.34

Global total

3.95

4.22

4.20

3.45

2.89

3

5

0

4

3

Occupational Health and Safety
Number of fatal accidents*7
Scope of Data
*1 Hitachi Group figures exclude approximately 40,000 manufacturing workers*2 Includes only voluntary resignations*3 The figures are based on all female managers including those dispatched from the Hitachi Group to other companies*4 Rising numbers of female managers in part reflect improved coverage of our human capital databases*5 Since fiscal 2017, “Female managers” has included managerial employees dispatched from Hitachi, Ltd. to othercompanies and those accepted from other companies by Hitachi, Ltd. Earlier figures include regular managerial
employees dispatched to other companies but exclude those accepted from other companies*6 Occurrence rate is the rate of workplace accidents per 1,000 directly contracted employees resulting in fatality or worktime loss of one day or more
*7 January to December each year

Ratios of Female and Non-Japanese Executive* (Hitachi, Ltd.)

June 2017

June 2018

June 2019

June 2020

June 2021

Number of female executives

2

2

4

5

7

Ratio of female executives (%)

2.4

2.6

5.0

7.1

10.1

Number of non-Japanese executives

3

5

7

6

8

Ratio of non-Japanese executives (%)

3.7

6.4

8.8

8.6

11.6

FY2016FY2017FY2018FY2019FY2020

3.5

3.6

3.4

3.4

3.4

*Executive Officers, Corporate Officers and Fellows

Research & Development
Ratio of R&D expenditure to revenue (%)

Responsible Procurement, Status of CSR Procurement Policies

FY2016FY2017FY2018FY2019FY2020

Cumulative total

CSR monitoring (self-check) (companies)

316

131

345

291

271

2,072*2

CSR audits

20

18

24

19

27

176*3

29

65

126

59

450

741*4

1

CSR Seminar for Suppliers**1 In fiscal 2020, CSR Seminar for Suppliers were held by webinar and e-learning instead of face-to-face *2 Total number of companies during FY2011-2020 *3 Total number of companies during FY2012-2020 *4 Total number of companies during FY2015-2020

Environment

FY2020FY2016FY2017FY2018FY2019Reduction rate in CO2 emissions per unit from products and services (base: FY2010)*(%)

—

—

—

19

20

CO2 emissions at business sites (factories and offices) (kt-CO2)

5,322

5,433

4,973

4,374

3,296

Total water use (million m3)

41.34

38.54

37.02

36.41

26.35

Waste and valuables generation (kt)

1,336

1,356

1,384

1,302

1,061

Atmospheric emissions of chemical substances (t)

4,325

4,378

4,352

3,882

2,374

* New indicator established in fiscal 2019
[Scope of Data]
Hitachi, Ltd. and consolidated subsidiaries.
Number of companies: FY2016: 865; FY2017: 880; FY2018: 804; FY2019: 815; FY2020: 872
However, Group companies that were acquired in the middle of the fiscal year are not included in the scope of the environmental load data.
For the scope of the environmental load data associated with Hitachi’s business operations, Hitachi, Ltd., and consolidated subsidiaries whose environmental load comprises more than 90%* of the total, excluding the Group companies mentioned above.
*Based on calculations by Hitachi, Ltd.

100 Hitachi Integrated Report 2021

Segment Highlights

Revenues, Adjusted Operating Income and EBIT by
Business Segment

Billions of yen

Revenues

Adjusted operating income

EBIT

FY2020FY2019FY2020FY2019FY2020IT2,099.4

2,048.7

249.4

269.4

214.4

244.8

Energy399.2

1,107.9

13.5(47.7)(375.7)(55.5)

Industry

840.7

830.1

54.7

45.5

57.8

42.3

Mobility

1,144.4

1,199.6

92.3

74.7

112.3

129.0

Smart Life

2,167.6

2,240.3

118.9

114.1

90.0

206.5

Hitachi Construction Machinery

931.3

813.3

75.5

31.6

70.5

27.6

Hitachi Metals

881.4

761.6

14.3

(4.9)

(57.2)(49.1)

Hitachi Chemical

631.4

―

35.2

―

24.8

―

Others

484.8

449.0

22.3

21.2

31.2

25.3

Subtotal

9,580.5

9,450.8

676.4

504.1

168.2

571.0

Corporate items & Eliminations(813.2)(721.6)(14.6)

(8.9)

15.3

279.2

Total

8,767.2

8,729.1

661.8

495.1

183.6

850.2

Value Creation

FY2019VisionBusiness Segment

Note: Hitachi Chemical was deconsolidated from fiscal 2020

Sustainability

Hitachi Group Business Operation Framework(As of April 2021)

Financial Institutions Business Unit

IT

Social Infrastructure Systems Business Unit
Services & Platforms Business Unit
Nuclear Energy Business Unit

EnergyEnergy Business Unit
GovernancePower Grids Business Unit
Industry & Distribution Business Unit
Water & Environment Business Unit

Industry

Hitachi Industrial Products, Ltd.
Hitachi Industrial Equipment Systems Co., Ltd.
Building Systems Business Unit

Mobility

Railway Systems Business Unit
Hitachi Global Life Solutions, Inc.

Smart Life

Hitachi High-Tech Corporation
Data

Automotive Systems

Hitachi Astemo, Ltd.
Hitachi Construction Machinery Co., Ltd.
Hitachi Metals, Ltd.
Regional Headquarters
Shared Service Companies, etc.

Segment

Business Unit

Listed Subsidiary101

Corporate Data / Stock Information (As of March 2021)

Corporate Name

Number of Employees(consolidated)

Hitachi, Ltd. (Kabushiki Kaisha

Stock Exchange Listings
Tokyo, Nagoya

350,864

Hitachi Seisakusho)

Accounting Auditor
URL

Number of Shares Issued (common
stock, including treasury stock)https://www.hitachi.com/

967,885,277 sharesContact

Head Office
Number of Shareholders

6-6, Marunouchi 1-chome,
Chiyoda-ku, Tokyo 100-8280, Japan

285,435

FoundedErnst & Young ShinNihon LLC

Hitachi, Ltd.
TEL: +81-3-3258-1111

Administrator of Shareholders’Register

1910 (Incorporated in 1920)

Tokyo Securities Transfer Agent Co., Ltd.
3-11, Kanda Nishiki-cho,

Capital Stock

Chiyoda-ku, Tokyo 101-0054, Japan

460,790 million yen

10 Largest Shareholders
Share ownership(shares)

Shareholding ratio(%)*1

The Master Trust Bank of Japan, Ltd. (Trust Account)

91,166,600

9.43

Custody Bank of Japan, Ltd. (Trust Account)

59,465,400

6.15

Hitachi Employees’ Shareholding Association

20,606,840

2.13

State Street Bank and Trust Company 505223

20,578,060

2.13

Nippon Life Insurance Company

20,000,099

2.07

NATS CUMCO*2

18,702,358

1.93

SSBTC CLIENT OMNIBUS ACCOUNT

16,715,255

1.73

State Street Bank and Trust Company 505001

16,698,514

1.73

JP Morgan Chase Bank 385632

16,563,302

1.71

State Street Bank West Client - Treaty 505234

15,549,487

1.61

Name

*1 Treasury stock (1,055,799 shares) is not included in the calculation of “Shareholding ratio”*2 NATS CUMCO is the nominee name of the depositary bank, Citibank, N.A., for the aggregate of the Company’s American Depositary Receipts (ADRs) holders

Ratings
Rating Company

Long-term

Short-term

S&P Global Ratings Japan Inc.

A

A–1

Moody’s Japan K.K. (Moody’s)

A3

P–2

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

AA-

a-1+
As of July 2021

102 Hitachi Integrated Report 2021

Shareholder Composition
Class of shareholders

Number ofshareholders

Share ownership(units)Individuals and others

Financial institution

205

3,200,291

Financial instruments business operator

62

434,021

Foreigncorporations, etc.
(Individuals)

2,308

144,379

0.01%

1,087

4,298,023

125

763

222,379

1,577,468

226,169

9,655,040―

2,381,277

Foreign corporations,etc.

Non-individuals
Individuals

Individuals and others
Total
Number of shares less than one unit (shares)

Foreigncorporations, etc.
(Non-individuals)

44.52%

Financial institution

33.15%

Vision95

Other institution

0.00%

16.34%

3

Government and municipality

Government and municipality

Share ownership

9,655,040units

Financial
instruments
business operator

4.50%
Other institution

1.50%
Value Creation

Note: Of 1,055,799 shares of treasury stock, 10,557 units are included in the “Individuals and others” column, while 99 shares are included in the “Number of shares less than one unit” column. Of the shares registeredin the name of Japan Securities Depository Center, Incorporated (account for managing stocks whose shareholders have not transferred titles), 53 units are included in the “Other institution” column and 65 sharesare included in the “Number of shares less than one unit” column

Message from the Editor-in-chief

September 2021

Governance

Sustainability Report, and the Integrated Report, to enableproduction based on organic collaborations and sincere
discussions among related divisions. This report has also been
produced amid studies targeting the creation of the next Midterm Management Plan. In that sense, I feel that this report
can also be used as a bridging media between Hitachi’s pastevolution and the path toward coming long-term growth. As
the executive officer responsible for the production of thisreport, I can say with confidence that this production process isfair and that the content presented herein is accurate.
I hope that you will take the time to read this report and ask
that you send us your impressions and unreserved opinionswith regard to Hitachi’s management. I further hope that thisHitachi Integrated Report 2021 will assist readers in gaining
a deeper understanding of Hitachi’s value creation story andprovide opportunities for the co-creation of new value with all
stakeholders.

Sustainability

Hitachi Integrated Report 2021 is the sixth such report tobe produced and issued. During this time, the world hasentered an era that is more unpredictable than ever before, as
evidenced by the COVID-19 pandemic. Over these past six
years, Hitachi has made substantial changes to its businessstructures, further clarifying directions for the creation of value
with a focus on digitalization and the environment, while making
continuous improvements to the Integrated Report so that its
content will better communicate Hitachi’s value creation story.
In the creation of this report, we engaged in extensive studies toensure that it was presented in an easy-to-understand format
from multiple perspectives so that readers can understandthe business model centered on Lumada, which combines
Hitachi’s strengths, and the value creation process based onthat business model. Back-casting from a vision of society and
Hitachi’s ideal future in 2030, we have summarized the themesthat should be prioritized as Strategic Focus Area, along withmeasures to be implemented in those areas.
For this report, we undertook a fundamental reexaminationof the production structure. We started the Information
Disclosure Working Group, which serves as a unified planningand production team for the Annual Securities Report, theHidenobu Nakahata
Senior Vice President and Executive Officer
Head of Corporate Communications and Audit

Independent Assurance of Social and Environmental Data

Indicators Subject to Independent Assurance

Hitachi Group
Hitachi, Ltd.

Ratio of female managers, Number of CSR audits, CO2 emissions at business sites
Ratio of non-Japanese executives, Ratio of female executives, Ratio of female managers

Website Information
About Hitachi Grouphttps://www.hitachi.com/corporate/about/(English)https://www.hitachi.co.jp/about/corporate/(Japanese)

Investor Relations
https://www.hitachi.com/IR-e/(English)https://www.hitachi.co.jp/IR/(Japanese)

Sustainability
https://www.hitachi.com/sustainability/(English)https://www.hitachi.co.jp/sustainability/(Japanese)

103

Data

To ensure the reliability of the data disclosed we have received independent assurance of key social and environmental performance indicators by KPMG AZSA
Sustainability Co., Ltd. in the Hitachi Sustainability Report 2021.