Introduction
Materiality

Value Creation

Mid-term Management Plan 2024

Transformation

Corporate Initiatives for Sustainability GrowthBusiness Strategies

Human Resources Strategy

Financial Strategy

Governance
CFO Message

Hitachi Integrated Report 2023

DataSector Strategies

Financial Strategy
In the Mid-term Management Plan 2024, we aim to achieve further advances in revenues and profitability and take additional steps to enhance our cash generation capability through organic
business growth, shifting into a sustainable growth mode. To achieve Hitachi’s growth through our financial capital strategy, we continue to work on three priority issues: (1) further strengthening
cash generation capability and deepening ROIC management, (2) reducing WACC by utilizing appropriate levels of leverage within the bounds of appropriate financial discipline, and (3) increasing
total shareholder return (TSR) by implementing shareholder return measures such as dividends and share buybacks.

Strengthening Cash Management

Progress on ROIC Management

In the Mid-term Management Plan 2024, we promote initiatives
to further strengthen cash generation capability. By reviewing
business processes, we aim to achieve further businessgrowth, improve profitability through cost reduction, and reduce
loss costs through risk management. We also implement
thorough cash management by strengthening the monitoring ofworking capital including early collection of accounts receivableand grasping the appropriate levels of inventories.
For cash generation, in addition to maximizing cash flows
from operating activities, it is important to strictly focus on
capital investment and cost reduction. With regard to capital
investment, we will carefully monitor each item. We also
promote the digitalization of cash management, including thevisualization of the entire supply chain through the use of ITsystems, etc.
By these measures, we aim to achieve a conversion rate (corefree cash flow*1 ÷ net income) of 70-80% and a core freecash flow per share (CFPS) of 500 yen or more.

Hitachi introduced return on invested capital (ROIC) as a KPI for business management from fiscal 2019 to acceleratemanagement that emphasizes capital efficiency, with the aim of sustainably generating returns that exceed the weighted average
cost of capital (WACC), which is the cost of raising invested capital. ROIC was 7.6% in fiscal 2022.
To achieve the 10% ROIC targeted in the Mid-term Management Plan 2024, we will further deepen ROIC management byutilizing the ROIC tree and taking concrete actions at the field level, such as the development of internal KPIs for each businessand the formulating and reviewing of business strategies. Hitachi aims to increase its enterprise value by promoting managementwith an awareness of the cost of capital throughout the group.
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

Optimize customer portfolio
Expand profitablerevenues

Expand overseas revenues
Expand Lumada revenues

Increase adjusted
operatingincome ratio

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

Increase after-tax
business profit

Implement structural reforms
Strengthen project management
Reduce loss costs
Withdraw / Replace unprofitable business*1 Core free cash flow = Cash flows from operating activities - CAPEX

Cash flows trends
Cash flows from operating activities (Billions of yen)Core free cash flow (Billions of yen)

Cash flows margin from operating activities (%)

Reduce tax expenses

Implement appropriate tax management

Increase equity inearnings of affiliated companies

Realize joint venture alliance synergies

Improve asset efficiency (Improve invested capital

Increase ROIC*2

business asset efficiency)
Example of major action items(to be further broken down and assigned to each division)

ROIC increase drivers

9.1%
6.4%
610.0

6.4%

7.1%
793.1

Early collection of trade receivables

7.6%

Increase workingcapital turnover

827.0

729.9

560.9

416.4

419.8
290.0
136.0

2018

135.4

2019

2020

2021

2022(FY)*2 ROIC = (NOPAT + Share of profits(losses) of investments accounted forusing the equity method) / “InvestedCapital” × 100
NOPAT (Net Operating Profit after Tax)
= Adjusted operating income × (1 –Effective income tax rate)
Invested Capital = Interest-bearing
debt + Total equity*3 CCC: Cash Conversion Cycle

CCC*3
improvement

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

Improve businessasset efficiency(Increase asset
turnover ratio)

Increase fixedasset
turnover ratio

Implement pre-investment checks and post-investment monitoring
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 pooling29

Introduction
Materiality

Value Creation

Mid-term Management Plan 2024

Business Strategies

Transformation

Corporate Initiatives for Sustainability Growth

Human Resources Strategy

Financial Strategy

Financing and Capital Costs

450

Hitachi share price
TOPIX including dividends
TOPIX Electrical Equipment including dividends

250200150

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 August 2023

Hitachi’s basic policy is not to acquire or hold shares of other companies except in cases whereacquiring or holding such shares is necessary in terms of transactions or business relationships.
We will promote reducing shares already held unless the significance or economic rationality ofholding is confirmed.
The Board of Directors verifies the appropriateness of all stock holdings every year. In the verification,
each individual stock is reexamined as to the purpose of holding the shares and whether benefits
from holding shares are in line with capital efficiency targets. As the result of verification, we promote
the sales of shares for which the significance or economic rationality of holding is not confirmed. In
fiscal 2022, we reduced the number of shares held for nine listed stocks (total amount sold: 84,017
million yen). The ratio of policy regarding strategic shareholdings (total amount recorded on balancesheet) to net assets (consolidated basis) is 4.4% as of the end of fiscal 2022.

Strategic shareholding status

1005002013/03

Rating company

Policy regarding Strategic Shareholdings

The following illustrates Hitachi’s TSR, reflecting dividend and stock price fluctuations.
We will continue to improve profitability and pay stable dividends, consider management andfinancial strategies to achieve TSR that exceeds the cost of shareholders’ equity, and strive toincrease shareholder value by conducting management that is conscious of stock prices.

300Sector Strategies

To ensure the stability of our financialbase, we aim to maintain an A ratingo n i s s u e d i n s t r u m e n t s t h ro u g happropriate financial discipline.
Our cash generation capability isenhancing steadily, and our ratings are
as shown in the table to the right.

Total Shareholder Return (TSR)350

CFO Message

Hitachi Integrated Report 2023

DataEnsuring Financial Stability

Financing is carried out through the means deemed most appropriate (e.g., cash on hand,borrowings, and proceeds from the sale of assets), based on a variety of conditions, including
the timing and amounts required by the business. When financing through borrowing andother forms of debt, we consider a D/E ratio of 0.5 times and a net debt/EBITDA ratio of
1.0 – 2.0 times as financial discipline. Regarding the cost of capital (hurdle rate) used forindividual investment decisions, calculations and judgments are made on a case-by-casebasis considering interest rates, country risks, and expected returns in the country where theinvestment will be made.

400

Governance2014/032015/03

2016/
03

2017/
03

2018/
03

2019/
03

2020/
03

2021/
03

2023/
03

2022/
03

(Number of stocks held)*
500
400

Past 1 Year
TSR

Past 3 Years
TSR

Annual TSR

Past 5 Years
TSR

Past 10 Years

Annual TSR

TSR

Annual TSR

375

300

Hitachi

20.0%

142.7%

34.4%

102.7%

15.2%

199.2%

11.6%

200

TOPIX
(including dividends)
TOPIX(electrical equipment)

5.8%

53.4%

15.3%

31.8%

5.7%

142.1%

9.2%

100

1.6%

77.6%

21.1%

56.4%

9.4%

254.5%

13.5%

0Note: The graph and table above show return on investment for investments made on March 31, 2013, taking into accountdividends and stock prices as of March 31, 2023. Hitachi, Ltd. investment performance, including stock prices anddividends, is indexed using 100 as the investment amount as of March 31, 2013. The TSE Stock Price Index (TOPIX),
which is a comparative indicator, is similarly indexed using data including dividends for electrical equipment.

4012013

2014

332

2015

309

2016

288

2017

272

233

217

198

2018

2019

2020

2021

2022

179,668

141,859

201,055

274,470

234,785

177

Total amount recorded on balance sheet* (Millions of yen)
353,957

334,617239,993* Total of listed and unlisted shares

324,323

270,336(FY)30